SECURITIES PURCHASE AGREEMENT
--------------------------------------------------------------------------------
between
DANSKIN INVESTORS, LLC
a Delaware Limited Liability Company
and
DANSKIN, INC.
a Delaware Corporation
-------------------------------------------------------------------------------
As of September 22, 1997
TABLE OF CONTENTS
Page
ARTICLE I.
PURCHASE AND SALE OF SECURITIES..................................... 1
Section 1.01 Authorization of Securities....................... 1
Section 1.02 Sale and Purchase of Securities................... 2
Section 1.03 Purchase Price.................................... 2
Section 1.04 Transfer Taxes.................................... 2
Section 1.05 Closing Date...................................... 2
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 2
Section 2.01 Organization and Qualification.................... 3
Section 2.02 Authority......................................... 3
Section 2.03 Consents and Approvals; No Violations............. 3
Section 2.04 Capitalization.................................... 4
Section 2.05 Subsidiaries...................................... 5
Section 2.06 Articles of Incorporation and By-laws............. 5
Section 2.07 Compliance With Laws; Licenses.................... 5
Section 2.08 Litigation; Investigations........................ 5
Section 2.09 Taxes............................................. 6
Section 2.10 Employee Benefit Plans; ERISA..................... 8
Section 2.11 Labor Relations................................... 10
Section 2.12 Insurance Policies................................ 11
Section 2.13 Environmental Laws................................ 11
Section 2.14 Financial Statements and Books and Records........ 13
Section 2.15 Absence of Liabilities............................ 14
Section 2.16 Absence of Specified Changes...................... 14
Section 2.17 Real Property; Leases............................. 16
Section 2.18 Equipment and Personal Property................... 17
Section 2.19 Intangible Property............................... 18
Section 2.20 Software.......................................... 18
Section 2.21 Contracts......................................... 18
Section 2.22 Inventory......................................... 20
Section 2.23 Title to Properties; Liens........................ 20
Section 2.24 Condition of Assets............................... 20
Section 2.25 Transactions with Affiliates...................... 21
Section 2.26 Valid Transfer.................................... 21
Section 2.27 Absence of Certain Practices...................... 21
ii
Section 2.28 Accounts Payable and Accrued Expenses............. 21
Section 2.29 Accounts Receivable............................... 21
Section 2.30 Solvency.......................................... 22
Section 2.31 Investment Company Act............................ 22
Section 2.32 Securities Exchange Act Reports................... 22
Section 2.33 Securities Exemption.............................. 23
Section 2.34 Customers and Suppliers........................... 23
Section 2.35 Rights Plan....................................... 23
Section 2.36 Promotional Programs.............................. 23
Section 2.37 Orders, Commitments and Returns................... 24
Section 2.38 Warranty Claims................................... 24
Section 2.39 Disclosure........................................ 24
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BUYER......................... 24
Section 3.01 Organization...................................... 24
Section 3.02 Authority......................................... 24
Section 3.03 Consents and Approvals; No Violations............. 25
Section 3.04 Own Account....................................... 25
Section 3.05 Limited Transferability........................... 25
Section 3.06 Accredited Investor............................... 25
Section 3.07 Furnishing the Company with Information........... 25
ARTICLE IV.
CONDITIONS TO EACH PARTY'S OBLIGATIONS.............................. 26
Section 4.01 Governmental Authorizations; Consents............. 26
Section 4.02 Absence of Litigation............................. 26
Section 4.03 No Injunction..................................... 26
Section 4.04 Opinion of Investment Banker...................... 26
ARTICLE V.
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS..................... 26
Section 5.01 Accuracy of Representations and Warranties........ 26
Section 5.02 Performance by the Company........................ 27
Section 5.03 Opinion of Counsel................................ 27
Section 5.04 Casualty Losses; Material Change.................. 27
Section 5.05 Customer Consents................................. 27
Section 5.06 Securities........................................ 27
Section 5.07 Deliveries........................................ 27
Section 5.08 By-law Amendments................................. 27
iii
Section 5.09 Lease............................................. 28
Section 5.10 Employment Agreements............................. 28
Section 5.11 License Modifications............................. 28
Section 5.12 Modification of Preferred Stock................... 29
Section 5.13 SunAmerica Waiver................................. 29
Section 5.14 Net Operating Losses.............................. 29
Section 5.15 Board of Directors................................ 29
Section 5.16 FIRPTA Affidavit.................................. 29
Section 5.17 Rights Plan....................................... 29
Section 5.18 Registration Rights Agreement..................... 29
Section 5.19 Patent Collateral and Security Agreement.......... 29
Section 5.20 Trademark Security Agreement...................... 30
Section 5.21 License Security Agreement........................ 30
Section 5.22 Loan and Security Agreement....................... 30
Section 5.23 Guaranty.......................................... 30
ARTICLE VI.
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS................... 30
Section 6.01 Accuracy of Representations and Warranties........ 30
Section 6.02 Performance by the Buyer.......................... 30
Section 6.03 Deliveries........................................ 30
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS............................................ 31
ARTICLE VIII.
INDEMNIFICATION..................................................... 31
Section 8.01 General Indemnity................................. 31
Section 8.02 Indemnification Procedure......................... 32
ARTICLE IX.
COVENANTS/OBLIGATIONS AFTER THE CLOSING.
................................................................... 34
Section 9.01 Further Assurances................................ 34
Section 9.02 Maintenance of Office............................. 34
Section 9.03 Corporate Existence; Status....................... 34
Section 9.04 Dividends......................................... 34
Section 9.05 Application of Proceeds........................... 34
iv
Section 9.06 Observance of Statutes, Regulations and Orders.... 35
Section 9.07 Taxes............................................. 35
Section 9.08 Maintenance of Properties......................... 35
Section 9.09 Books and Records................................. 35
Section 9.10 Maintenance of Insurance; Indemnification......... 35
Section 9.11 Inspection........................................ 35
Section 9.12 Furnish Reports................................... 35
Section 9.13 Furnish Additional Information.................... 36
Section 9.14 Rights Offering................................... 36
Section 9.15 Transfer of Securities............................ 38
Section 9.16 Corporate Governance.............................. 38
Section 9.17 Options........................................... 39
Section 9.18 Exchange of Securities............................ 39
Section 9.19 Information Statement; Certificate of
Incorporation..................................... 40
Section 9.20 Confidentiality................................... 41
ARTICLE X.
MISCELLANEOUS....................................................... 41
Section 10.01 Costs............................................. 41
Section 10.02 Headings.......................................... 42
Section 10.03 Notices........................................... 42
Section 10.04 Binding Effect.................................... 43
Section 10.05 Governing Law; Forum; Process..................... 43
Section 10.06 Entire Agreement.................................. 43
Section 10.07 Counterparts...................................... 44
Section 10.08 Severability...................................... 44
Section 10.09 No Prejudice...................................... 44
Section 10.10 Words in Singular and Plural Form................. 44
Section 10.11 Parties in Interest............................... 44
Section 10.12 Amendment and Modification........................ 44
Section 10.13 Waiver............................................ 44
Section 10.14 Knowledge of the Company.......................... 44
Section 10.15 Remedy for Breach................................. 44
EXHIBITS
A. Certificate of Designations of Investor Preferred Stock
B. Notes
C. Certificate of Designations of Convertible Preferred Stock
D. Warrant
E. Opinion of Company Counsel
v
F. Registration Rights Agreement
G. Patent Collateral Assignment and Security Agreement
H. Trademark Security Agreement
I. License Security Agreement
J. Loan and Security Agreement
K. Mortgage and Deed of Trust Documents
L. Guaranty of Danpen, Inc.
M. Agreement with Xxxxxx Xxxxxxx
N. Fourth Amendment to Employment Agreement with Xxxx Xxx Xxxxxxxxx
O. Fifth Amendment to Employment Agreement with Xxxxxxx Xxxxxx
P. Warrant Agreement granted to Xxxxxx Xxxxxxx
Q. Option Agreement granted to Xxxx Xxx Xxxxxxxxx
R. Option Agreement granted to Xxxxxxx Xxxxxx
S. Option Agreement granted to Xxxx XxXxxxxx
vi
SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT, dated as of September 22, 1997 (this
"Agreement"), by and between Danskin Investors, LLC, a Delaware limited
liability company (the "Buyer"), and Danskin, Inc. a Delaware corporation (the
"Company").
R E C I T A L S
---------------
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, the Buyer desires to purchase from the Company and the Company
desires to sell to the Buyer (i) Series C Convertible Preferred Stock of the
Company, $.01 par value per share ("Investor Preferred Stock") and (ii)
convertible subordinated notes (the "Notes" and collectively with the Investor
Preferred Stock, the "Securities), as more particularly described herein in
consideration for the payments from the Buyer, as set forth herein;
WHEREAS, the Buyer and the Company also desire to establish in this
Agreement certain terms and conditions concerning the corporate governance of
the Company.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein,
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF SECURITIES
-------------------------------
Section 1.01 Authorization of Securities. Upon the terms and subject to
the conditions set forth herein, the Company has authorized the issuance and
sale of (i) Five Hundred Thousand Dollars ($500,000) in stated value of Investor
Preferred Stock which shall contain the terms and conditions and be in the form
of Exhibit A hereto, (ii) Fifteen Million Dollars ($15,000,000) aggregate
principal amount of Notes which shall contain the terms and conditions and be in
the form of Exhibit B hereto, (iii) upon conversion or exchange of the
Securities, Twelve Million Dollars ($12,000,000) in stated value of Series D
Cumulative Convertible Preferred Stock of the Company, $.01 par value per share
("Convertible Preferred Stock"), which shall contain the terms and conditions
and be in the form of Exhibit C hereto, (iv) upon conversion or exchange of the
Securities, a warrant to purchase 10,000,000 shares of common stock of the
Company, $.01 par value per share ("Common Stock"), at an exercise price per
share equal to $.30 (the "Warrant") which shall contain the terms and conditions
and be in the form of Exhibit D hereto, (v) subject to stockholder approval of
an increase in the authorized capital stock of the Company, upon conversion of
the Convertible Preferred Stock and exercise of the Warrant, up to 50,000,000
shares of Common Stock (such shares of Common Stock, Investor Preferred Stock,
Convertible Preferred Stock and the shares of Common Stock referred to in clause
(vi) below are
1
sometimes referred to herein as the "Stock") and (vi) upon conversion or
exchange of the Securities, up to 10,000,000 shares of Common Stock to be
offered in the Rights Offering (as defined in Section 9.14).
Section 1.02 Sale and Purchase of Securities. Upon the terms and
subject to the conditions set forth herein, at the Closing (as defined in
Section 1.05), the Company shall sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer shall purchase, acquire and accept from the Company,
free and clear of all liens, charges, encumbrances, security interests, pledges,
equities, assessments or restrictions of any nature whatsoever, (i) Five Hundred
Thousand Dollars ($500,000) in stated value of Investor Preferred Stock and (ii)
$15,000,000 aggregate principal amount of Notes.
Section 1.03 Purchase Price. The aggregate purchase price (the
"Purchase Price") for the Securities to be purchased pursuant to Section 1.02
shall be paid by the Buyer at the Closing by (i) cancelling in part and
contributing to the capital of the Company in part the outstanding principal
amount of the term loan portion (the "Loan Amount") of the Company's obligations
under the Amended and Restated Loan and Security Agreement between the Company
and First Union National Bank of North Carolina (the "Bank"), as agent, and the
lender's named therein, dated as of June 22, 1995, as amended to date (the "Loan
Agreement") and (ii) wire transfer of $4,000,000 (the "Cash Purchase Price") to
an account(s) designated in writing by the Company.
Section 1.04 Transfer Taxes. The Company shall pay on the Closing Date
all municipal, county, state and federal sales and transfer taxes incurred and
the costs of preparing or documenting the same, if any, in connection with the
transactions contemplated by this Agreement. The Company shall prepare, and each
party, as appropriate, shall in a timely manner sign and swear to any return,
certificate, questionnaire or affidavit as to matters within its knowledge
required in connection with the payment of any such tax.
Section 1.05 Closing Date. Subject to the fulfillment or waiver of the
conditions precedent set forth in Articles IV, V, and VI, the closing of the
transactions contemplated by Section 1.02 of this Agreement (the "Closing")
shall take place at the offices of Shereff, Friedman, Xxxxxxx & Xxxxxxx, LLP,
000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 on September 22, 1997, or such other
location, date and time as to which the parties may mutually agree (such date
and time of the Closing is referred to herein as the "Closing Date").
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to the Buyer as of the date hereof
and the date of the Closing as follows:
2
Section 2.01 Organization and Qualification. The Company and each of
its Subsidiaries (as defined in Rule 405 under the Securities Act of 1933, as
amended (each a "Subsidiary" and collectively, the "Subsidiaries")), is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization. The Company and each Subsidiary has all
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. The Company and each Subsidiary is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where failure to be so duly qualified or licensed and in good standing
would not individually or in the aggregate have a Material Adverse Effect on the
Company or such Subsidiary. A true, correct and complete list of such
jurisdictions is set forth on Schedule 2.01. For purposes of this Agreement, a
"Material Adverse Effect" with respect to the Company and the Subsidiaries means
any event, circumstance or condition that, individually or when aggregated with
all other similar events, circumstances or conditions could reasonably be
expected to have, or has had, a material adverse effect on: (i) the business,
property, operations, condition (financial or otherwise), results of operations
or prospects of the Company or such Subsidiary, (ii) the Securities or (iii) the
ability of the Company to consummate the transactions contemplated hereunder.
Section 2.02 Authority. The Company has the requisite corporate power
and authority to execute and deliver this Agreement and each of the other
exhibits hereto, documents otherwise to be delivered at the Closing pursuant to
Section 5.07 hereof, the Seventh Amendment to the Loan Agreement, the
Subordination Agreement and the Assignment and Acceptance to be entered into
between the Buyer and the Bank and acknowledged by the Company and each other
agreement or instrument delivered at the Closing (the "Related Agreements") and
to consummate the transactions contemplated by this Agreement and the Related
Agreements. Except as set forth on Schedule 2.02, the execution, delivery and
performance of this Agreement and the Related Agreements, and the consummation
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action on the part of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or the Related Agreements or to consummate the transactions
contemplated hereby or thereby, except that the approval of the holders of not
less than a majority of the outstanding shares of voting stock of the Company
are required to amend the Company's certificate of incorporation (the
"Certificate of Incorporation") as contemplated by Section 9.19 hereof. This
Agreement and the Related Agreements have been duly executed and delivered by
the Company and, assuming this Agreement and the Related Agreements constitute
valid and binding obligations of the Buyer, constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms.
Section 2.03 Consents and Approvals; No Violations. Except as set forth
on Schedule 2.03, neither the execution, delivery or performance of this
Agreement or the Related Agreements by the Company, nor the consummation by it
of the transactions contemplated hereby or thereby nor compliance by it with any
of the provisions hereof or thereof will (i)
3
conflict with or result in any breach of any provision of the charter or by-laws
of the Company or any Subsidiary, (ii) require any filing with, or permit,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity"), except where the failure to
obtain any permit, authorization, consent or approval, or to make such filing or
notification would not have a Material Adverse Effect, (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which the Company or any Subsidiary is a party
or by which any of their properties or assets may be bound, except where such
violation or breach would not have a Material Adverse Effect, (iv) result in any
payment being required or being accelerated on the part of the Company to any
person on account of severance arrangements or otherwise or (v) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or any Subsidiary or any of their properties or assets.
Section 2.04 Capitalization. The authorized and outstanding capital
stock of the Company as of the date hereof is as set forth on Schedule 2.04(a)
hereto. All of the outstanding shares of the capital stock of the Company are
validly issued, fully paid and non-assessable and have been issued by the
Company in compliance with all applicable federal and state securities laws and
all applicable rules and regulations thereunder. The Securities to be issued
hereunder have been validly authorized, and when delivered and paid for pursuant
to this Agreement, will be validly issued and outstanding, and fully paid and
non-assessable. Except for the satisfaction of any stockholder approvals and the
clearance of the Information Statement (as defined in Section 3.07), the
Convertible Preferred Stock, the Warrant and the Common Stock to be issued upon
conversion or exchange of the Securities and the Convertible Preferred Stock or
exercise of the Warrant have been validly authorized, and when delivered and
paid for pursuant to this Agreement, will be validly issued and outstanding, and
fully paid and non-assessable. Except as set forth on Schedule 2.04(b), the
issuance and sale of the Securities and the Stock will not give rise to (x) any
preemptive rights or rights of first refusal or similar rights (other than the
rights of other shareholders of the Company to purchase in the Rights Offering)
or (y) any anti-dilution rights or similar rights on behalf of anyone in
existence either on the date hereof or on or prior to the Closing Date. Except
as set forth on Schedule 2.04(b), there are no outstanding (i) securities
convertible into or exchangeable for the Company's capital stock; (ii) options,
warrants or other rights to purchase or subscribe for capital stock of the
Company; or (iii) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights. Except as set forth on Schedule 2.04(b), there is no
outstanding right, option or other agreement of any kind to purchase or
otherwise to receive from the Company any ownership interest in the Company or
the Subsidiaries, and there is no outstanding right or security of any kind
convertible into such ownership interest. Except as set forth on Schedule
2.04(b), there is no outstanding right, option or other agreement of any kind to
register under the Securities Act of 1933, as amended, any securities of the
Company.
4
Section 2.05 Subsidiaries. Schedule 2.05 attached hereto lists the name
of each Subsidiary and sets forth the number and class of the authorized capital
stock of each Subsidiary and the number of shares of each Subsidiary which are
issued and outstanding, all of which shares (except as set forth on Schedule
2.05) are owned by the Company, free and clear of all liens, claims, charges or
encumbrances of every kind. Except as set forth on Schedule 2.05, the Company
does not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
Section 2.06 Articles of Incorporation and By-laws. Attached hereto on
Schedule 2.06 are true and complete copies of the Company's Certificate of
Incorporation and by-laws (the "Bylaws") as in effect on the date hereof.
Section 2.07 Compliance With Laws; Licenses.
(a) The conduct of the business of the Company and each
Subsidiary is in material compliance with all federal, state, local or foreign
laws, rules, regulations or ordinances, or judgments, injunctions, writs,
decrees, orders or guidance documents and memos of any court or Governmental
Entity (collectively, the "Orders"), and all industry manufacturing and safety
standards, and the Company has not received any notice of any material violation
of any Order which remains outstanding except those listed on Schedule 2.07.
Neither the Company nor any Subsidiary is subject to any Order currently in
effect which could individually or in the aggregate have a Material Adverse
Effect.
(b) Except as set forth on Schedule 2.07, the Company
possesses all licenses, permits, consents, authorizations, registrations and
approvals of, with or from Governmental Entities which have jurisdiction over
it, and occupancy, fire, business and other permits from local officials
("Licenses"), and is in full compliance with the terms thereof except where any
violations, or the absence of such License, would not singly, or in the
aggregate, have a Material Adverse Effect. All of the Licenses are valid and in
full force and effect.
Section 2.08 Litigation; Investigations. Schedule 2.08 sets forth a
complete and accurate list of all suits, claims, proceedings, investigations,
audits or reviews which are pending or, to the best knowledge of the Company,
threatened against, probable of assertion against or affecting the Company or
any Subsidiary, any of their directors or any properties or assets used in the
conduct of the business of the Company (other than routine proceedings or
routine, uncontested claims for benefits under any Plans (as defined in Section
2.10)). Except as disclosed in Schedule 2.08 (i) no investigation, audit or
review by any Governmental Entity with respect to the Company or any Subsidiary
is pending or, to the best of the Company's knowledge, threatened, nor has any
Governmental Entity indicated to the Company an intention to conduct the same,
and (ii) there is no action, suit or proceeding pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any
Subsidiary at law or in equity
5
where the relief claimed exceeds $10,000 above applicable insurance coverage, or
before any Governmental Entity. Except as set forth on Schedule 2.08, there is
no pending action or suit seeking in excess of $250,000 brought by the Company
or any Subsidiary against others.
Section 2.09 Taxes.
(a) The terms "Tax" and "Taxes" shall mean any and all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, premium, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
authority, whether federal, state, or local or domestic or foreign. The term
"Tax Return" shall mean any report, return, form, declaration or other document
or information required to be supplied to any authority in connection with
Taxes.
(b) All Tax Returns for all periods which end prior to or
which include the Closing Date that are or were required to be filed prior to
Closing by the Company have been or shall be filed on a timely basis in
accordance with the applicable laws of each Governmental Entity. The Company
shall timely file or cause to be filed all franchise, income or other Tax
Returns including Tax Returns relating to the transactions contemplated by the
Agreement that shall be required to be filed after the Closing Date. All such
Tax Returns that have been filed were, when filed, and continue to be, true,
correct and complete. All such franchise, income or other Tax Returns that will
be filed shall be true, correct and complete when filed.
(c) Schedule 2.09(c) hereto lists all United States federal,
state, local and foreign income Tax Returns that have been filed since January
1, 1991 by the Company that have been audited by any Governmental Entity. Except
as set forth on Schedule 2.09(c), any deficiencies proposed as a result of such
audits have been paid or finally settled. The Company is not aware of any fact
which would constitute substantial grounds for any further material tax
liability with respect to the years which have not been or are currently being
audited. There are no outstanding waivers or extensions of any statute of
limitations relating to the payment of Taxes or the assessment of any Taxes by
the Company to which the Company may be liable, and no Governmental Entity has
either formally or informally requested such a waiver or extension.
(d) Except as set forth on Schedule 2.09(d) hereto, the
Company has paid all of its Taxes that have become due and will make
arrangements for the timely payment of any Taxes that may become due, for all
periods which end prior to or which include the Closing Date, including all
Taxes reflected, or required to be reflected, on the Tax Returns referred to in
this Section 2.09, or in any assessment, proposed assessment or notice, either
formal or informal, received by the Company, except such Taxes, if any, as are
set forth on Schedule 2.09(d) hereto that are being contested in good faith and
as to which adequate reserves (determined in accordance with GAAP (as defined
herein)) have been provided. All Taxes that the Company is
6
or was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the appropriate
Governmental Entities. There are no liens with respect to Taxes on the capital
stock or any property or assets of the Company other than permitted liens for
certain Taxes not yet due (or taxes that are being contested in good faith by
appropriate proceedings and for which adequate reserves (determined in
accordance with GAAP) have been provided).
(e) The Company has not agreed to make, nor is it required to
make, any adjustments under Section 481(a) of the Code by reason of or change in
accounting method or otherwise.
(f) Except as set forth on Schedule 2.09(f), with respect to
the Subsidiaries, the Company is not, and has never been (and was not required
to have been) included in any consolidated, combined or unitary Tax Return with
any other person.
(g) Except as set forth on Schedule 2.09(g), the Company is
not a party to any agreement or arrangement (whether or not written) providing
for the payment (whether by indemnification or otherwise) of the Tax liability
of (or the relinquishment of any Tax Refund to) any other person, and is not
otherwise liable, by law, judgment or otherwise, for the Tax liability of any
other person.
(h) There are no outstanding requests for rulings with any
Taxing or revenue authority that might affect the operations or Tax liability of
the Company.
(i) The Company was not a United States Real Property Holding
Corporation within the meaning of Section 897 (c)(2) of the Code on any
applicable determination date during the preceding 5-year period and will not
constitute such a United States Real Property Holding Corporation on any
applicable determination date during any 5-year period ending on any date on
which the Buyer will acquire an interest in the Company pursuant to this
Agreement and the Related Agreements.
(j) Except as set forth on Schedule 2.09(j) hereto (i) no
deficiency for any Taxes has been proposed, asserted or assessed against the
Company that has not been resolved and properly paid in full, (ii) no waiver,
extension or comparable consent given by the Company regarding the application
of the statute of limitations with respect to any Taxes or Tax Returns is
outstanding, nor is any request for any such waiver or consent pending, (iii)
there is no Tax audit or other administrative proceeding or court proceeding
with regard to any Taxes or Tax Returns pending, nor has there been any notice
to the Company by any Taxing authority regarding any Tax audit or other
proceeding which has not been completed, nor, to the best knowledge of the
Company, is any such Tax audit or other proceeding threatened with regard to any
Taxes or Tax Returns; (iv) no power of attorney authorizing any person to take
any action on behalf of the Company with respect to any Taxes is currently in
force; and (v) there are no pending claims for refund of Taxes filed by the
Company.
7
(k) None of the assets of the Company are assets that the
Buyer or the Company is or shall be required to treat as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately before the enactment of the
Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code.
(l) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(m) The Company has not made an election under Section 341(f)
of the Code.
(n) For purpose of this Section 2.09, references to the
Company shall also refer to the Subsidiaries.
Section 2.10 Employee Benefit Plans; ERISA.
(a) Attached hereto as Schedule 2.10 are complete and accurate
copies of all employee benefit plans, all employee welfare benefit plans, all
employee pension benefit plans, all multi-employer plans and all multi-employer
welfare arrangements (as defined in Sections 3(3), (1), (2), (37) and (40),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), which are currently maintained and/or sponsored by the Company (or
any Subsidiary), or to which the Company (or any Subsidiary) currently
contributes, or has an obligation to contribute in the future (including,
without limitation, benefit plans or arrangements that are not subject to ERISA,
such as employment agreements and any other agreements containing "golden
parachute" provisions and deferred compensation agreements), together with
copies of any trusts related thereto and a classification of employees covered
thereby (collectively, the "Plans"). Schedule 2.10 sets forth all of the Plans
that have been terminated within the past three years.
(b) Except for the Plans, the Company (including any
Subsidiary) does not maintain or sponsor, nor is it a contributing employer to,
a pension, profit-sharing, deferred compensation, stock option, employee stock
purchase or other employee benefit plan, employee welfare benefit plan, or any
other arrangement with its employees whether or not subject to ERISA. All Plans
are in substantial compliance with all applicable provisions of ERISA and the
regulations issued thereunder, as well as with all other applicable laws, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents. All Plans that are intended
to qualify (the "Qualified Plans") under Section 401(a) of the Code are so
qualified and have been determined by the IRS to be so qualified (or
applications for determination letters have been timely submitted to the
Internal Revenue Service (the "IRS")), and copies of the current plan
determination letters, most recent actual valuation reports, if any, most recent
Form 5500, or, as applicable, Form 5500-C/R filed with respect to each such
Qualified Plan or employee welfare benefit plan and most recent trustee
8
or custodian report, are included as part of Schedule 2.10. To the extent that
any Qualified Plans have not been amended to comply with applicable law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any Governmental
Entity or distributed to plan participants or beneficiaries (including, but not
limited to, annual reports, summary annual reports, actuarial reports, PBGC-1
forms, audits or Tax Returns) have been timely filed or distributed. Neither any
Plan nor the Company (included any Subsidiary) has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No Plan has incurred an accumulated funding deficiency (as defined in
Section 412(a) of the Code and Section 302(l) of ERISA); and no event has
occurred pursuant to which the Company (including any Subsidiary) could have any
direct or indirect liability whatsoever (including being subject to any
statutory lien to secure payment of any such liability), to the Pension Benefit
Guaranty Corporation ("PBGC") under Title IV of ERISA or to the IRS for any
excise tax or penalty with respect to any plan now or hereafter maintained or
contributed to by the Company or any member of a "controlled group" (as defined
in Section 4001(a)(14) of ERISA) that includes the Company; and the Company
(including any Subsidiary) or any member of a "controlled group" (as defined
above) that includes the Company does not currently have (or at the Closing Date
will not have) any obligation whatsoever to contribute to any "multi-employer
pension plan" (as defined in ERISA Section 4001(a)(14)), nor has any withdrawal
liability whatsoever (whether or not yet assessed) arising under or capable of
assertion under Title IV of ERISA (including, but not limited to, Sections 4201,
4202, 4203, 4204, or 4205 thereof) been incurred by any Plan. Further, except as
set forth on Schedule 2.10,:
(i) since January 1, 1992, there have been no
terminations, partial terminations or discontinuance of contributions
to any Qualified Plan without a determination by the IRS that such
action does not adversely affect the tax-qualified status of such
Qualified Plan;
(ii) since January 1, 1992, no Plan which is subject
to the provisions of Title IV of ERISA, has been terminated;
(iii) since January 1, 1992, there have been no
"reportable events" (as that phrase is defined in Section 4043 of
ERISA) with respect to any Plan which were not properly reported;
(iv) the valuation of assets of any Qualified Plan,
as of the Closing Date, shall equal or exceed the actuarial present
value of all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
(v) with respect to Plans which qualified as "group
health plans" under Section 4980B of the Code and Section 607(1) of
ERISA and related regulations (relating to the benefit continuation
rights imposed by "COBRA"), the Company (including any
9
Subsidiary) has complied (and on the Closing Date will have complied)
in all material respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the Company (including any
Subsidiary) has not incurred (and will not incur) any direct or
indirect liability and is not (and will not be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or
other sanction, arising on account of or in respect to any direct or
indirect failure by the Company (including any Subsidiary), at any time
prior to the Closing Date to comply with any such federal or state
benefit continuation requirement, which is capable of being assessed or
is asserted before or after the Closing Date directly or indirectly
against the Company (including any Subsidiary) with respect to such
group health plans;
(vi) the Company (including any Subsidiary) is not
now nor has it been within the past five years a member of a
"controlled group" as defined in ERISA Section 4001(a)(14) other than
with respect to each other;
(vii) there is no pending litigation, arbitration or
disputed claim, settlement or adjudication proceeding, and, to the best
of the Company's knowledge, there is no threatened litigation,
arbitration or disputed claim, settlement or adjudication proceeding,
or investigation with respect to any Plan, or with respect to any
fiduciary, administrator or sponsor thereof (in their capacities as
such), or any party in interest thereof; and
(viii) the Company (including any Subsidiary) has not
incurred liability under Sections 4062, 4063, 4064 and 4069 of ERISA.
Section 2.11 Labor Relations. Except as set forth on Schedule 2.11: (i)
the Company and each Subsidiary has paid and performed all material obligations
with respect to its employees, independent sales representatives, consultants,
agents, officers and directors, including without limitation all wages,
salaries, commissions, bonuses, severance pay, vacation pay, benefits and other
direct compensation for all services performed by such persons to the date
hereof and all amounts required to be reimbursed to such persons; (ii) the
Company and each Subsidiary is in compliance in all material respects with all
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours;
(iii) there is no pending, or to the Company's knowledge threatened, charge,
complaint, allegation, application or other process against the Company or any
Subsidiary before the National Labor Relations Board or any comparable state,
local or foreign agency, governmental or administrative; (iv) there is no labor
strike, dispute, slowdown or work stoppage or other job action pending, or to
the Company's knowledge, threatened against or otherwise materially affecting or
involving the Company or any Subsidiary; and (v) no employees of the Company or
any Subsidiary are covered by any collective bargaining agreements and to the
best knowledge of the Company no effort is being made by any union to organize
any of the Company's or the Subsidiaries' employees.
10
Section 2.12 Insurance Policies. The Company and each Subsidiary
maintain insurance covering all risks customarily insured against and in amounts
reasonable and customary in light of the Company's and the Subsidiaries' assets,
properties, business, operations, products and services as the same are
presently owned or conducted. Each current policy is in full force and effect
and all premiums are currently paid and no notice of cancellation or termination
has been received with respect to any such policy. Such policies have been
sufficient for compliance with all material requirements of law. Except as set
forth on Schedule 2.12, there are no material claims, actions, suits or
proceedings arising out of or based upon any of such policies of insurance and,
to the knowledge of the Company, no basis for any such material claim, action,
suit or proceeding exists. The Company has not been refused any insurance with
respect to its assets and operations, nor has its coverage been limited by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last five (5) years.
Section 2.13 Environmental Laws.
(a) As used in this Section 2.13, the following terms shall
have the following meanings:
(A) "CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, as amended.
(B) "CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Information System.
(C) "Environmental Laws" means all applicable federal, state,
local and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, treaties, protocols, permits, licenses and
judgments relating to pollution, contamination or protection of the
environment (including without limitation all applicable federal,
state, local and foreign laws, rules, regulations, codes, ordinances,
orders, decrees, directives, permits, licenses and judgments relating
to Hazardous Materials).
(D) "Hazardous Materials" means any dangerous, toxic or
hazardous pollutant, contaminant, chemical, waste, material or
substance as defined in or governed by any federal, state, local or
foreign law, statute, code, ordinance, regulation, rule or other
requirement relating to such substance or otherwise relating to the
environment or human health or safety, including without limitation any
chemical, waste, material, substance, pollutant or contaminant that
might cause any injury to human health or safety or to the environment
or might subject the Company or any Subsidiary to any environmental
costs or liability under any Environmental Law.
(E) "Regulatory Actions" mean any claim, demand, action or
proceeding with respect to the Company or any Subsidiary brought or
instigated by any governmental
11
authority in connection with any Environmental Law, including without
limitation, civil, criminal and/or administrative proceedings, and
whether or not seeking environmental costs.
(F) "Release" means the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any
other release or threatened release, however defined, whether
intentional or unintentional, of any Hazardous Material in quantities
or concentrations regulated under Environmental Laws.
(G) "Third-Party Environmental Claims" means any third-party
claim, action, demand or proceeding (other than a Regulatory Action)
based on negligence, trespass, strict liability, nuisance, toxic tort,
or any other cause of action or theory under common law or
Environmental Law.
(b) Attached hereto as Schedule 2.13 are all environmental
site assessments, reports, documentation, information and other studies relating
to the presence or possible presence of Hazardous Materials (as defined
hereafter) on, at, in, under, about or from the Real Property (as defined in
Section 2.17) or from the activities of the Company or any Subsidiary on, at,
in, under, about or from the Real Property (collectively, the "Environmental
Assessments").
(c) The Company and each Subsidiary at all times has been in
compliance with all applicable Environmental Laws. Neither, the Company nor any
Subsidiary has received any notice of any violation of Environmental Law
relating to the Real Property or the operations of the Company or any
Subsidiary. No Third-Party Environmental Claims and/or Regulatory Actions have
been asserted or assessed against the Company or any Subsidiary relating to the
Real Property or the operations of the Company or any Subsidiary, and to the
knowledge of the Company after due inquiry, no Third-Party Environmental Claims
and/or Regulatory Actions are pending or threatened against the Company or any
Subsidiary relating to the Real Property or the operations of the Company or any
Subsidiary or to properties owned by the Company to which the Company has
shipped Hazardous Materials for treatment, storage or disposal.
(d) The Company and each Subsidiary has obtained all permits,
licenses, certificates of compliance, approvals and other authorizations
relating to any Environmental Law (collectively referred to herein as
"Authorizations") necessary for the operation of the Company and each
Subsidiary. The Company and each Subsidiary is in compliance with the
requirements of all Authorizations.
(e) The Real Property is not listed in the United States
Environmental Protection Agency's (the "EPA") National Priorities List of
Hazardous Waste Sites under CERCLA or any similar state list, schedule, log,
inventory or record (however defined), of sites from which there has been a
Release of Hazardous Materials. No part of the owned Real Property or to the
knowledge of the Company, the leased Real Property was ever used, nor is it now
being used, as a landfill, dump or other disposal, storage, transfer, handling,
or treatment
12
area for Hazardous Materials, or as a gasoline service station or a facility for
selling, dispensing, storing, transferring, disposing or handling petroleum
and/or petroleum products.
(f) All transfer, transportation or disposal of Hazardous
Materials by the Company or any Subsidiary to properties not owned, leased or
operated by the Company or any Subsidiary has been in compliance with applicable
Environmental Laws. Neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Materials to any location which
is (A) listed on the EPA's National Priorities List of Hazardous Waste Sites
under CERCLA or any similar state list, schedule, log, inventory or record
(however defined), of sites from which there has been a Release of Hazardous
Materials; (B) listed for possible inclusion on the National Priorities List by
the EPA in CERCLIS or any similar state or local list; or (C) the subject of any
Regulatory Action or Third-Party Environmental Claim.
(g) There has not been, and is not now occurring, any Release
of any Hazardous Material on, in, under, about, or from the Real Property,
including to the knowledge of the Company, a Release that has come to be located
on or under the Real Property from another location.
(h) Except as set forth on Schedule 2.13(h), no above ground
or underground storage tanks or xxxxx are located on, under or about the Real
Property, or have been located on, under or about the Real Property and then
subsequently been removed or filled. If any such storage tanks exist on, under
or about the Real Property, such storage tanks have been duly registered with
all appropriate governmental entities and are otherwise in compliance with all
applicable Environmental Laws.
(i) Except as set forth on Schedule 2.13(i), the Company has
successfully taken all remedial measures, conducted all tests and analyses and
instituted all policies recommended to the Company by HTS Environmental Group in
their Phase I Environmental Assessments of the Company's facilities in Grenada,
Mississippi and York, Pennsylvania dated as of January 14, 1992 and January 15,
1992, respectively, and, as a result of such action on the part of the Company,
no condition or thing has come to the attention of the Company which would (or
with the lapse of time will) individually or in the aggregate have a Material
Adverse Effect.
Section 2.14 Financial Statements and Books and Records. The Company
has previously delivered to the Buyer a copy of the following consolidated
financial statements: the balance sheet of the Company as at December 28, 1996
and June 30, 1997, and the related results of operation and statement of cash
flows for the periods then ended (the "Financial Statements"). Copies of the
Financial Statements are annexed as Schedule 2.14 hereto. The Financial
Statements are true and accurate, are in accordance with the books and records
of the Company and present fairly in all material respects the financial
position and related results of operations of the Company and the Subsidiaries
as of the times and for the periods referred to herein, in accordance with U.S.
generally accepted accounting principles consistently applied throughout
13
the periods covered thereby ("GAAP"). All of the financial books and records of
the Company have been made available to the Buyers.
Section 2.15 Absence of Liabilities. Except as described on Schedule
2.15, the Company and each Subsidiary has no debt, liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether or not the amount thereof is readily ascertainable,
that are not reflected as a liability in the Financial Statements except for
liabilities incurred by the Company or the Subsidiaries in the ordinary course
of business consistent with past practices which are not otherwise prohibited
by, in violation of or which will result in a breach of the representations,
warranties and covenants of the Company contained in this Agreement.
Section 2.16 Absence of Specified Changes. Except as disclosed on
Schedule 2.16, in the Company's Current Report on Form 8-K dated May 19, 1997,
in the Company's Annual Report on Form 10-K, in the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1997, or as contemplated by the
transactions to be consummated at the Closing, since December 28, 1996, there
has not been with respect to the Company (including any Subsidiary) any:
(a) action which would result in a material adverse change,
whether direct or indirect, in the business, operations, condition (financial or
otherwise), prospects, liabilities or assets of the Company and the Company does
not know of any change that is threatened or pending which could have a Material
Adverse Effect;
(b) transaction not in the ordinary course of business,
including without limitation any sale of all or substantially all of the assets
of the Company or any merger of the Company and any other entity;
(c) unfulfilled commitments requiring expenditures by the
Company exceeding $250,000 (excluding commitments expressly described elsewhere
in this Agreement or the Schedules hereto or which were undertaken in the
ordinary course of business consistent with past practice);
(d) material damage, destruction or loss, whether or not
insured;
(e) failure to maintain in full force and effect substantially
the same level and types of insurance coverage as in effect on December 28, 1996
or destruction, damage to, or loss of any asset of the Company (whether or not
covered by insurance) that materially and adversely affects the business,
operations, condition (financial or otherwise), prospects, liabilities or assets
of the Company;
14
(f) change in accounting principles, methods or practices,
investment practices, claims, payment and processing practices or policies
regarding intercompany transactions;
(g) revaluation of any assets or material write down of the
value of any inventory;
(h) loan or payment to any stockholder or any declaration,
setting aside, or payment of a dividend (whether in cash or in shares of capital
stock) or other distribution in respect of its capital stock, or any direct or
indirect redemption, purchase or other acquisition of any shares of its capital
stock;
(i) issuance or sale of any shares of capital stock or of any
other equity security or any security convertible into or exchangeable or
exercisable for equity securities (except pursuant to the exercise of
outstanding derivative securities or otherwise pursuant to currently authorized
and outstanding employee stock options) or the repricing of any such share of
capital stock, other equity security or securities convertible into or
exchangeable or exercisable for equity securities;
(j) amendment to its Certificate of Incorporation or By-laws
other than those disclosed on Schedule 2.06;
(k) sale, assignment or transfer of any tangible or intangible
asset, including any rights to intellectual property, in the aggregate in excess
of $50,000, except in the ordinary course of business consistent with past
practice;
(l) (x) disposition of or lapse of any material patent,
trademark, trade name, service xxxx or copyright or any application for the
foregoing, (y) disposition of any material technology, software or know-how, or
(z) disposition of any license, permit or authorization to use any of the
foregoing or any other material right;
(m) mortgage, pledge or other encumbrance, including liens and
security interests, of any tangible or intangible asset;
(n) discharge or satisfaction of any lien or encumbrance or
payment or cancellation of any liability other than payment of current
liabilities in the ordinary course of business consistent with past practice;
(o) cancellation of any debt owed to the Company or any
Subsidiary or waiver or release of any material contract, right or claim, except
for cancellations, waivers and releases in the ordinary course of business which
do not exceed $ 250,000 in the aggregate;
15
(p) indebtedness incurred for borrowed money or any commitment
to borrow money, any capital expenditure or capital commitment requiring an
expenditure of monies in the future, any incurrence of a contingent liability or
any guaranty or commitment to guaranty the indebtedness of others entered into,
by the Company, other than customary transactions in the ordinary course of
business not in excess of $ 250,000 in the aggregate;
(q) amendment, termination or revocation of, or a failure to
perform obligations or the occurrence of any default under, any contract or
agreement to which the Company, is, or as of December 28, 1996 was, a party or
of any license, permit or franchise required for the continued operation of any
business conducted by the Company on December 28, 1996;
(r) increase or commitment to increase the salary or other
compensation payable or to become payable to any of its officers, directors or
employees, agents or independent contractors, or the payment of any bonus to the
foregoing persons or enter into any employment agreement except as may be
required under employment, collective bargaining or termination agreements in
effect on the date hereof or, solely with respect to employees other than
officers, executive officers and directors, in the ordinary course of business
and consistent with past practice and applicable policies and procedures of the
Company; or
(s) agreement or understanding to take any of the actions
described above in this Section 2.16.
Section 2.17 Real Property; Leases.
(a) Schedule 2.17(a) sets forth a correct and complete list of
all real property owned by the Company or any Subsidiary and Schedule 2.17(b)
sets forth a correct and complete list of each lease, sublease or other
arrangement pursuant to which the Company or any Subsidiary leases or subleases
real property (collectively, the owned and leased or subleased real property is
herein referred to as "Real Property"). The Company and the Subsidiaries are the
sole and exclusive legal and equitable owner of all right, title and interest
in, and have good, marketable and insurable title in fee simple to, all of the
Real Property set forth on Schedule 2.17 as being owned by the Company or such
Subsidiary, free and clear of all liens, security interests, charges or
encumbrances of any kind, except for liens the presence of which would not be
likely to have a Material Adverse Effect. All Real Property is in condition and
repair adequate for its current use, is suitable for the purposes for which it
is presently being used and in the aggregate is adequate to meet all present
requirements of the business of the Company and each of its Subsidiaries, as
currently conducted.
(b) The Company has heretofore delivered or will deliver to
the Buyer prior to Closing a complete and accurate copy of each lease and
sublease included on Schedule 2.17(b). Unless otherwise noted on Schedule
2.17(b), the Company or a Subsidiary is the sole lessee or sublessee under each
of the leases and subleases listed on Schedule 2.17(b) and each such lease
16
and sublease is valid and in full force and effect and enforceable in accordance
with its terms and has not been further supplemented, amended or modified.
Unless otherwise noted on Schedule 2.17(b), there exists no event of default or
event, occurrence, condition or act, including without limitation the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereunder, which constitutes or would constitute (with notice or
lapse of time or both) a default in any respect under any of the leases or
subleases on Schedule 2.17(b) that would cause, individually or in the
aggregate, a Material Adverse Effect. To the best of the Company's knowledge,
neither the Company nor any Subsidiary has received any notice of any event of
default or any event, occurrence, condition or act, including without limitation
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereunder, which constitutes or would constitute (with
notice or lapse of time or both) a default in any respect under any of the
leases or subleases on Schedule 2.17(b). The leased premises are structurally
sound with no material defects and are in good operating condition and repair
and are adequate for the uses to which they are being put; and none of such
leased premises are in need of maintenance or repairs except for ordinary,
routine maintenance and repairs which are not material in nature or cost. The
Real Property covered by any leasehold interests listed on Schedule 2.17(b), the
buildings, fixtures and improvements on such, and the present use thereof,
comply in all material respects with all restrictive covenants, deeds and other
restrictions and all zoning laws, ordinances and regulations of Governmental
Entities or other authorities having jurisdiction thereof, including provisions
relating to permissible nonconforming uses, if any, and any such premises are
not presently affected, nor to the best knowledge of the Company threatened, by
any condemnation or eminent domain proceeding or any proceeding by a mortgagee.
Section 2.18 Equipment and Personal Property. Except as described in
Schedule 2.18, all equipment and tangible personal property used by the Company
or any Subsidiary are either owned, free and clear of all liens and
encumbrances, or are (i) used under capital leases reflected on the Financial
Statements or (ii) used under operating leases. All such leases are valid and in
full force and effect and enforceable in accordance with their terms and have
not been further supplemented, amended or modified. Neither the Company nor any
Subsidiary has received any notice of, and there exists no event of default, or
event, occurrence, condition or act, including, without limitation, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein, which constitutes or would constitute (with
notice or lapse of time or both) a default in any respect under any such lease.
All of the equipment and tangible personal property owned or leased by the
Company and each Subsidiary is in good operating condition and repair, subject
to normal wear and tear, none of such assets is in need of maintenance or
repairs except for ordinary, routine maintenance and such assets are suitable
for and operating according to their intended use in accordance with industry
standards.
Section 2.19 Intangible Property. Schedule 2.19 sets forth a complete
and accurate list of the Intangible Property. The Company and each Subsidiary
owns or possesses, or has adequate and enforceable licenses or other rights to
use and license for all purposes, all proprietary rights necessary for its
business (as now conducted or as proposed to be conducted)
17
without any conflict with or infringement of the rights of others including,
without limitation, trade secrets, inventions, processes, formulae, technology,
technological data, information and know-how. Except as set forth on Schedule
2.19, with respect to the Company and each Subsidiary (i) the Company or such
Subsidiary has sole and exclusive good, valid and transferable title with
respect to the Intangible Property identified thereon as owned by the Company,
(ii) no royalties or other consideration is required in connection with the
Company's or any Subsidiary's use and enjoyment of the Intangible Property,
except as provided under the terms of any license agreement or other instrument
pursuant to which the Company has obtained rights to use such Intangible
Property identified on Schedule 2.19 as not owned by the Company and (iii) no
material claim has been asserted by any person against the Company or any
Subsidiary with respect to the ownership or use of any Intangible Property by
the Company or any Subsidiary nor has the Company or any Subsidiary asserted any
similar claim against any person, and to the best knowledge of the Company,
there exists no valid basis for any such claim. Except as set forth on Schedule
2.19, the use of the Intangible Property does not violate or infringe, and has
not violated or infringed, the rights of any person. Except as set forth on
Schedule 2.19, neither the Company nor any Subsidiary is a licensor with respect
to any Intangible Property. "Intangible Property" means all trade names,
trademarks, service marks, patents and copyrights (including any registrations
or pending applications for registration of any of the foregoing), and all
licenses or other rights relating to any of the foregoing that are attributable
to the conduct of, used in, or related to, the operations of the Company and
each Subsidiary.
Section 2.20 Software. All computer software, databases and programs
utilized by the Company and each Subsidiary are owned by, or are licensed to the
Company or a Subsidiary, without any restrictions thereon other than those
generally applicable to software licenses pursuant to the licensor's general
terms and conditions.
Section 2.21 Contracts.
(a) Schedule 2.21 sets forth an accurate, correct and complete
list of the following contracts, agreements, arrangements or instruments (the
"Contracts") in effect at any time from January 1, 1996 through the date hereof,
to which the Company or any Subsidiary is or was a party, by which it is bound
or pursuant to which the Company or any Subsidiary is or was an obligor or a
beneficiary:
(i) Any material contracts with respect to tangible
property other than Real Property which are included on Schedule 2.17,
all Contracts with affiliates (whether or not material) other than
employment agreements providing for an annual salary and bonus of less
than $100,000 or option agreements, material license agreements,
termination agreements, consulting or severance agreements, and
agreements relating to labor or collective bargaining matters;
18
(ii) Any Contract for capital expenditures or
services by the Company or any Subsidiary which involves consideration
payable by the Company or any Subsidiary in excess of $250,000 in any
fiscal year;
(iii) Any Contract evidencing any indebtedness for
borrowed money in excess of $ 250,000 or obligation for the deferred
purchase price of assets in excess of $250,000 (excluding normal trade
payables) or guaranteeing any indebtedness, obligation nor liability in
excess of $ 250,000;
(iv) Any Contract wherein the Company or any
Subsidiary has agreed to a non-competition provision;
(v) Any joint venture, partnership, cooperative
arrangement or any other Contract involving a sharing of profits;
(vi) Any Contract with any Governmental Entity other
than for services in the ordinary course of business;
(vii) Manufacturers' representative, sales agency,
dealer or advertising Contract which is not terminable on notice
without cost or other liability to the Company or any Subsidiary;
(viii) Contract for the conversion of any obligation,
instrument or security, into debt or equity securities of the Company
or any Subsidiary other than the Securities, the Stock or the Warrant;
(ix) Settlement agreement of any material
administrative or judicial proceeding within the past five years other
than those the effect of which is reflected in the Financial
Statements;
(x) Any power of attorney, proxy or similar
instrument granted by or to the Company or any Subsidiary other than in
the ordinary course of business consistent with past practice; and
(xi) Any other material Contract related to the
business of the Company or any Subsidiary, as currently conducted or
any other Contract not in the ordinary course of business of the
Company consistent with past practice.
Accurate, correct and complete copies of each such written
Contract and written summaries of each such oral Contract have been delivered by
the Company to the Buyer.
(b) Each Contract listed or referred to on Schedule 2.21 to
which the Company or any Subsidiary is a party, by which it is bound or pursuant
to which the Company or
19
any Subsidiary is an obligor or a beneficiary is in full force and effect,
except where the failure to be in full force and effect will not cause a
Material Adverse Effect. The Company and each Subsidiary has complied with all
commitments and obligations on its part to be performed or observed under each
such Contract, except for such noncompliance which is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. To the
knowledge of the Company, each party to each such Contract other than the
Company or any Subsidiary has complied, and is in continuous compliance, with
all commitments and obligations on its part to be performed or observed
thereunder, except for such noncompliance which is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. The Company
has not received any notice of a default under any such Contract and no event or
condition has happened or presently exists which constitutes a default or, after
notice or lapse of time or both, would constitute a default under any such
Contract, except for such notices and defaults which are not reasonably likely,
individually or in the aggregate (together with the items set forth in Schedule
2.21 annexed hereto), to have a Material Adverse Effect.
(c) Except as set forth on Schedule 2.21, no consent of any
other party to any of the Contracts is required in connection with the
execution, delivery and performance of this Agreement by the Company.
Section 2.22 Inventory. All inventory of the Company and each
Subsidiary, whether reflected in the Financial Statements or otherwise and
whether existing now or at the Closing, consists or will consist of a quality
and quantity usable in the ordinary course of business, except for items of
obsolete materials, prior season, slow moving, irregular or defective stock and
materials of below-standard quality, all of which have been written off or down
to fair market value as reflected in the Financial Statements. The inventory
reflected in the Financial Statements were on the date thereof properly recorded
thereon and reflected at such date proper reserves as determined in accordance
with GAAP, consistently applied, and stated, on an aggregate basis, at the lower
of cost (based on the first-in, first-out method) or market value. The current
inventory of the Company and each Subsidiary are not, except in amounts which in
the aggregate are not material, in excess of their reasonably anticipated
requirements. The current inventory of the Company conforms to customary trade
standards for marketable goods.
Section 2.23 Title to Properties; Liens. The Company and each
Subsidiary has good, valid and marketable title to all of its assets, free and
clear of any lien, charge or other encumbrance, except for (a) the lien of the
Bank pursuant to the Loan Agreement, (b) such liens or other encumbrances
specifically set forth on Schedule 2.23 and (c) liens for current Taxes not yet
due and payable.
Section 2.24 Condition of Assets. The assets, including, without
limitation, manufacturing plants, of the Company and each Subsidiary are in good
working order and condition, subject to normal wear and tear, and have no
defects which would materially interfere with the business of the Company or any
Subsidiary as presently conducted or to be conducted after the Closing Date.
20
Section 2.25 Transactions with Affiliates. Except as set forth on
Schedule 2.25 or as contemplated by the transactions to be consummated at the
Closing, no officer, director or 5% stockholder of the Company or any Subsidiary
(i) has borrowed money from, or loaned money to, the Company or any Subsidiary
pursuant to which any amount remains outstanding, (ii) is a party to any
contract with the Company or any Subsidiary,(iii) has asserted or threatened to
assert any claim against the Company or any Subsidiary within the past 36 months
or that has not been fully discharged or (iv) is engaged in any transaction with
the Company or any Subsidiary.
Section 2.26 Valid Transfer. At the Closing, the Company will convey to
the Buyer good title to the Securities purchased free and clear of any liens,
claims, charges, encumbrances, security interests, pledges, equities,
assessments or restrictions of any nature whatsoever. Upon conversion or
exchange, if any, of the Securities into Convertible Preferred Stock, the
Warrant and Common Stock, the Company will convey to the holders of such
securities good title to the Convertible Preferred Stock, the Warrant and Common
Stock purchased thereby free and clear of any liens, claims, charges,
encumbrances, security interests, pledges, equities, assessments or restrictions
of any nature whatsoever. The form of certificates representing the Stock to be
delivered to the Buyer shall conform to all applicable requirements of the State
of Delaware.
Section 2.27 Absence of Certain Practices. To the best knowledge of the
Company, neither the Company, the Subsidiaries, nor any director, officer,
agent, employee or other person acting on their behalf, has given or agreed to
give any gift or similar benefit of more than nominal value to any customer,
supplier, or governmental employee or official or any other person who is or may
be in a position to help or hinder the Company or any Subsidiary or assist the
Company or any Subsidiary in connection with any proposed transaction involving
the Company or any Subsidiary, which gift or similar benefit, if not given in
the past, would have materially and adversely affected the business or prospects
of the Company or any Subsidiary.
Section 2.28 Accounts Payable and Accrued Expenses. All accounts
payable and accrued expenses reflected on the Financial Statements arose from
bona fide transactions in the ordinary course of business.
Section 2.29 Accounts Receivable. All accounts receivable reflected on
the Financial Statements arose from bona fide transactions in the ordinary
course of business and, to the best knowledge of the Company, there are no facts
or circumstances which will cause such receivables not to be current and fully
collectible in accordance with their terms, net of any reserves or allowances
reflected on the Financial Statements for accounts receivable included in the
Financial Statements.
Section 2.30 Solvency. After giving effect to the transactions
contemplated by this Agreement and the other transactions related hereto, and
the payment of fees and expenses in connection therewith, the Company in good
faith after due inquiry believes that:
21
(a) The present fair salable value of all of the assets
(including goodwill), taken as a whole, of the Company will be greater than the
total amount of liabilities, including contingent, subordinated, absolute,
fixed, matured or unmatured and liquidated or unliquidated liabilities, of the
Company.
(b) The present fair salable value of all of the assets
(including goodwill), taken as a whole, of the Company is sufficient to pay the
probable liability of the Company on its existing debts as such debts become
absolute and matured. The Company currently pays and expects it will be able to
pay its debts and other liabilities, contingent obligations and other
commitments as they mature or come due in the normal course of business.
(c) The Company is not engaged in, and is not about to engage
in, business or transactions for which it has unreasonably small capital.
No transfer of property is being made and no obligation is
being incurred in connection with the transactions contemplated by this
Agreement or any other document contemplated herein with the intent to hinder,
delay or defraud either present or future creditors of the Company.
Section 2.31 Investment Company Act. The Company is not an investment
company or a person directly or indirectly controlled by or acting on behalf of
an investment company within the meaning of the Investment Company Act of 1940,
as amended.
Section 2.32 Securities Exchange Act Reports. True and complete
copies of the following documents, have been separately delivered and identified
by the Company to the Buyer:
(i) The Company's Annual Reports on Form 10-K for the fiscal
years ended December 30, 1995 and December 28, 1996;
(ii) The Company's Quarterly Reports on Form 10-Q for the
periods ended March 31, 1997 and June 30, 1997;
(iii) The Company's definitive proxy statement relating to the
Company's 1996 annual meeting of stockholders; and
(iv) The Company's Current Report on Form 8-K dated May 19,
1997.
All reports, forms and statements required to be filed by the Company
during the period from January 1, 1995 to the date of this Agreement under
Securities Exchange Act of 1934, as amended (the "Exchange Act") have been duly
filed. The Company has heretofore made public disclosure of such additional
material information since the date of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1996 as it was required to disclose
22
pursuant to the requirements of applicable federal and state securities and
other laws and has furnished copies of such disclosure to the Buyer. The report
on Form 10-K for the fiscal year ended December 28, 1996 and all subsequent
reports on Form 10-Q and 8-K, annual reports to stockholders, proxy statements
and other public disclosures as of the dates thereof or the dates made, and such
other documents or information with respect to the Company and its Subsidiaries
required to be supplied to the Buyer pursuant to this Agreement or supplied to
the Buyer at its request by the Company or on its behalf, taken as a whole, were
or are true, correct and complete and did not or do not contain any statement
which is false or misleading with respect to a material fact, and did not or do
not omit to state a material fact necessary in order to make the statements
therein not false or misleading.
Section 2.33 Securities Exemption. Assuming the representations and
warranties of the Buyer are true, the offer and sale of the Securities pursuant
to this Agreement and the issuance of the Convertible Preferred Stock, the
Warrant and the Common Stock to the Buyer upon the conversion or exchange, if
any, of the Securities are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Company has
not and will not take any actions which would cause the offers and sales
contemplated hereunder to be ineligible for such exemption or subject the same
to the registration or qualification requirements of any securities or blue sky
laws of any applicable jurisdiction. The offer of the Securities was made in
accordance with, and in full compliance with, all applicable federal and state
securities or blue sky laws.
Section 2.34 Customers and Suppliers. To the knowledge of the Company,
except as set forth on Schedule 2.34, none of the Company's ten largest
customers in terms of sales or ten largest suppliers in terms of purchases, in
each case with respect to the fiscal year ended December 28, 1996, has ceased
doing business with the Company and, to the knowledge of the Company, none of
such customers or suppliers intends to cease doing business with the Company or
to materially and adversely change its relationship with the Company.
Section 2.35 Rights Plan. Neither the execution nor delivery of this
Agreement or the Related Documents nor the consummation of the transactions
contemplated hereby and thereby will result in the rights issued by the Company
under the Rights Agreement, dated as of June 5, 1996 between the Company and
First Union National Bank of North Carolina, N.A., as rights agent (the "Rights
Plan"), becoming exercisable by the holders thereof or result in the creation or
vesting of any rights in such holders under the Rights Plan.
Section 2.36 Promotional Programs. Since January 1, 1995, the
promotional programs of the Company and the Subsidiaries and the Subsidiaries
have been and are being conducted in the ordinary course of business consistent
with past practice. Schedule 2.36 describes all material obligations,
commitments, agreements and understandings, whether oral or written, with any
person having relations with the Company relating to or involving advertising
and promotional programs or plans whether directed to customers, trade parties
or others.
23
Section 2.37 Orders, Commitments and Returns. As of the date of this
Agreement, the aggregate of all accepted and unfulfilled orders for the sale of
merchandise entered into by the Company is approximately $17,769,585 as of
September 19, 1997, and all contracts or commitments for the purchase of
supplies by the Company and all orders were made in the ordinary course of
business. As of the date of this Agreement, there are no claims against the
Company to return in excess of an aggregate of $250,000 of merchandise by reason
of alleged overshipments, defective merchandise or otherwise, and there is no
merchandise in the hands of customers under an understanding that such
merchandise would be returnable.
Section 2.38 Warranty Claims. The schedule of warranty expenses of the
Company for the two fiscal years ended December 31, 1996 as described on
Schedule 2.38 is true, complete and correct.
Section 2.39 Disclosure. No representation, warranty or statement made
by the Company in (i) this Agreement, (ii) the Schedules attached hereto, or
(iii) any other written materials furnished or to be furnished by the Company to
the Buyer or its representatives, attorneys and accountants pursuant to this
Agreement, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer represents and warrants to the Company as of the date hereof
and the date of the Closing as follows:
Section 3.01 Organization. The Buyer is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Buyer has all requisite power and authority to own, lease
and operate its properties and to carry on its business as being conducted.
Section 3.02 Authority. The Buyer has the requisite power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, has been duly
authorized by all necessary action on the part of the Buyer, and no other
proceedings on the part of the Buyer are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Buyer and, assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a valid
and binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms.
24
Section 3.03 Consents and Approvals; No Violations. Neither the
execution, delivery or performance of this Agreement by the Buyer nor the
consummation by the Buyer of the transactions contemplated hereby nor compliance
by the Buyer with any of the provisions hereof will require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity (except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings would not have a material adverse effect on the Buyer).
Section 3.04 Own Account. The Buyer is acquiring the Securities, the
Warrant and the Stock for its own account, for investment and not with a view to
the distribution thereof within the meaning of the Securities Act; provided,
that under the terms of organization of the Buyer, under certain circumstances,
the Securities, the Warrant and the Stock will be distributed to the members of
the Buyer.
Section 3.05 Limited Transferability. The Buyer understands that (i)
the Securities, the Warrant and the Stock have not been registered under the
Securities Act, by reason of their issuance by the Company in transactions
exempt from the registration requirements of the Securities Act and (ii) the
Securities, the Warrant and the Stock must be held by the Buyer indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration requirement; provided, that under the terms
of organization of the Buyer, under certain circumstances, the Securities, the
Warrant and the Stock will be distributed to the members of the Buyer.
Section 3.06 Accredited Investor. The Buyer, and each of the members of
the Buyer, is an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act. Buyer has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the acquisition of the Securities, the Warrant and the Stock, and, having had
access to, or having been furnished with, all such information as it has
considered necessary, has concluded that it is able to bear those risks.
Section 3.07 Furnishing the Company with Information. The Buyer, on its
own behalf and on behalf of its members, will furnish to the Company such
information as is required in accordance with the Securities Act for inclusion
in a registration statement to be filed by the Company in connection with the
Rights Offering and such information as is required in accordance with the
Exchange Act, and the proxy rules promulgated thereunder for inclusion in an
information statement to be distributed to stockholders regarding the amendments
to the Certificate of Incorporation contemplated hereby and the other
transactions contemplated hereby (the "Information Statement").
ARTICLE IV.
CONDITIONS TO EACH PARTY'S OBLIGATIONS
--------------------------------------
25
The respective obligations of each party hereunder are subject to the
satisfaction, at or before the Closing, of the conditions set out below.
Section 4.01 Governmental Authorizations; Consents. The Company and the
Buyer shall have obtained all Consents necessary for the consummation of the
transactions contemplated hereby or that thereafter may be necessary to
effectuate the transactions contemplated hereby.
Section 4.02 Absence of Litigation. There shall not have been issued
and be in effect any order of any court or tribunal of competent jurisdiction
which (i) prohibits or makes illegal the purchase by the Buyer of the
Securities, the Warrant or the Stock, (ii) would require the divestiture by the
Buyer of all or a material portion of the Securities, the Warrant or the Stock
or the assets of the Buyer as a result of the transactions contemplated hereby,
or (iii) would impose limitations on the ability of the Buyer to effectively
exercise full rights of ownership of the Securities, the Warrant or the Stock as
a result of the transactions contemplated hereby.
Section 4.03 No Injunction. On the Closing Date there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby.
Section 4.04 Opinion of Investment Banker. The Company shall have
received the opinion of Wasserstein, Perella & Co. that the Purchase Price is
fair to the Company from a financial point of view.
ARTICLE V.
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
-----------------------------------------------
The obligation of the Buyer to purchase the Securities is subject to
the satisfaction, at or before the Closing, of the conditions set out below. The
benefits of these conditions are for the Buyer only and may be waived in writing
by the Buyer at any time in its sole discretion.
Section 5.01 Accuracy of Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of Closing Date as though made
at that time, and the Buyer shall have received a certificate attesting thereto
from the Company signed by a duly authorized officer of the Company.
Section 5.02 Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions
26
required by this Agreement, including, without limitation, the deliveries
required under this Article V and the Buyer shall have received a certificate
attesting thereto from the Company signed by a duly authorized officer of the
Company.
Section 5.03 Opinion of Counsel. The Buyer shall have received from
counsel to the Company an opinion of counsel, dated as of the Closing Date and
addressed to the Buyer in the form annexed hereto as Exhibit E.
Section 5.04 Casualty Losses; Material Change. Since December 28, 1996,
neither the Company nor any Subsidiary shall have suffered (i) any material
casualty loss, (ii) any material business interruption, (iii) any material labor
difficulty or customer boycott or (iv) any material adverse change in its
business, operations, prospects or financial condition.
Section 5.05 Customer Consents. The consent of each customer of the
Company or licensor/licensee of the Company listed on Schedule 5.05 shall have
been obtained to the issuance and transfer of the ownership of the Securities,
the Warrant and the Stock.
Section 5.06 Securities. The Securities shall be free and clear of
liens, charges or encumbrances.
Section 5.07 Deliveries. At the Closing, the Company shall deliver to
the Buyer: (i) duly executed certificates representing all of the Investor
Preferred Stock being purchased hereby; (ii) duly executed Notes representing
all of the Notes being purchased hereby; (iii) such other bills of sale,
instruments of assignment and other documents as may be reasonably requested by
the Buyer in order to effect or evidence the transactions contemplated
hereunder; (iv) an opinion of counsel to the Company in the form attached hereto
as Exhibit E; (v) a certificate of the chief executive officer of the Company
certifying to the fulfillment of the conditions set forth in Sections 5.01 and
5.02; (vi) a copy of the resolutions of the Company's Board of Directors and of
its stockholders, certified by its secretary, authorizing the execution,
delivery and performance of this Agreement and the Related Agreements; (vii)
good standing certificates for the Company and its Subsidiaries relating to
their respective jurisdictions of incorporation and the jurisdictions listed on
Schedule 2.01, a certified Certificate of Incorporation of the Company and the
By-laws of the Company reflecting the amendments referred to in Section 5.08;
(viii) copies of the consents referred to in Section 5.05, if any; and (ix) such
other instruments and certificates as may be reasonably requested by the Buyer.
Section 5.08 By-law Amendments. The Company shall have amended its
By-laws to fix the number of the members of the Board of Directors at nine.
Section 5.09 Lease. The Company shall have entered into a modification
of the lease relating to the Company's Showroom at 000 Xxxx 00xx Xxxxxx, Xxx
Xxxx, Xxx Xxxx, in form and substance satisfactory to the Buyer.
27
Section 5.10 Employment Agreements.
(a) The Company shall have entered into an agreement with
Xxxxx Xxxx, providing for his agreement to remain reasonably accessible to the
Company and assist in a smooth transition, in form and substance satisfactory to
the Buyer.
(b) The Company shall have entered into a modification of the
Company's employment agreement with Xxxx Xxx Xxxxxxxxx, providing for (i) the
deferral by Xx. Xxxxxxxxx of certain rights under the change-of-control
provisions of such agreement and (ii) the continued employment of Xx. Xxxxxxxxx
by the Company, in form and substance satisfactory to the Buyer.
(c) The Company shall have entered into a modification of the
Company's employment agreement with Xxxxxxx Xxxxxx, providing for (i) the
deferral by Xx. Xxxxxx of certain rights under the change-of-control provisions
of such agreement and (ii) the continued employment of Xx. Xxxxxx by the
Company, in form and substance satisfactory to the Buyer.
(d) The Company shall have entered into an agreement with
Xxxxxx Xxxxxxx, providing for (i) the continued employment of Xx. Xxxxxxx by the
Company, (ii) the termination of that certain Heads of Agreement dated March 27,
1997 between the Company and Xx. Xxxxxxx and (iii) the issuance on the Closing
Date, to Xx. Xxxxxxx of a warrant to purchase 5,372,315 shares of Common Stock
at $.30 per share.
(e) The Company shall have entered into option agreements with
each of Xxxx Xxx Xxxxxxxxx, Xxxxxxx Xxxxxx and Xxxx XxXxxxxx in form and
substance satisfactory to the Buyer.
Section 5.11 License Modifications.
(a) The Company shall have entered into a modification of the
Company's license agreement with Givenchy Corporation ("Givenchy"), providing
for (i) the waiver by Givenchy of its rights under the change-of-control
provisions of such agreement and (ii) the continuation of such license agreement
on the terms contained therein, in form and substance satisfactory to the Buyer.
(b) The Company shall have entered into a modification of the
Company's license agreement with Xxxx Xxxxx & Company ("AKC"), providing for (i)
the waiver by AKC of its rights under the change-of-control provisions of such
agreement and (ii) the continuation of such license agreement on the terms
contained therein, in form and substance satisfactory to the Buyer.
Section 5.12 Modification of Preferred Stock. The Company shall have
authorized an agreement with the holder of the Company's 10% Cumulative
Convertible Preferred Stock
28
("Preferred Stock"), providing for the modification and/or exchange or
conversion of the Preferred Stock, in form and substance satisfactory to the
Buyer.
Section 5.13 SunAmerica Waiver. The Company shall have entered into an
agreement with SunAmerica Life Insurance Company ("SunAmerica"), providing for
the termination by SunAmerica of its right to designate members of the Board of
Directors of the Company, in form and substance satisfactory to the Buyer.
Section 5.14 Net Operating Losses. The Buyer shall be reasonably
satisfied that, for federal income tax purposes, the net operating losses of the
Company (which at June 29, 1997 were approximately $11.6 million) shall be
available to shelter cancellation of indebtedness income, if any, arising from
the discharge of the term loan portion of the Loan Agreement.
Section 5.15 Board of Directors. Subject to the succeeding sentence,
the Buyer shall have received, and the Company shall have accepted, resignations
of such members of the Board of Directors of the Company as the Buyer shall have
designated. The Company shall have taken all actions necessary to cause the
Board of Directors of the Company to be comprised of nine persons as follows:
four designees of the Buyer; three designees of the Board of Directors of the
Company as comprised prior to the date of the Closing; Xxxxxx Xxxxxxx and Xxxx
Xxx Xxxxxxxxx. The Company's Board of Directors shall recommend or approve all
such designees to the Board prior to their appointment as directors. The Company
shall have taken all actions necessary to cause the Board of Directors of the
Company to establish the Credit Facility Committee (as defined in Section 9.17).
Section 5.16 FIRPTA Affidavit. The Company shall have delivered an
affidavit, dated the Closing Date, pursuant to Section 1445 of the Code (Foreign
Investment in Real Property Tax Act of 1990 Affidavit).
Section 5.17 Rights Plan. The Company shall have taken all action
required under the Rights Plan to redeem the rights granted thereunder and shall
have delivered to the Buyer evidence satisfactory to the Buyer of such action.
Section 5.18 Registration Rights Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed Registration Rights Agreement in
the form attached hereto as Exhibit F.
Section 5.19 Patent Collateral and Security Agreement. At the Closing,
the Company shall deliver to the Buyer the duly executed Patent Collateral
Assignment and Security Agreement in the form attached hereto as Exhibit G.
Section 5.20 Trademark Security Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed Trademark Security Agreement in the
form attached hereto as Exhibit H.
29
Section 5.21 License Security Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed License Agreement in the form
attached hereto as Exhibit I.
Section 5.22 Loan and Security Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed Loan and Security Agreement in the
form attached hereto as Exhibit J.
Section 5.23 Guaranty. At the Closing, the Company shall deliver to the
Buyer the duly executed Guaranty of Danpen, Inc. in the form attached hereto as
Exhibit L.
ARTICLE VI.
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.
--------------------------------------------------
The obligation of the Company to sell the Securities is subject to the
satisfaction, at or before the Closing, of the conditions set out below. The
benefits of these conditions are for the Company only and may be waived by the
Company in writing at any time in its sole discretion.
Section 6.01 Accuracy of Representations and Warranties. The
representations and warranties of the Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date, as though
made at that time.
Section 6.02 Performance by the Buyer. The Buyer shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, including, without limitation, the
deliveries required by Section 6.03 and the Company shall have received a
certificate attesting thereto from a duly authorized officer of the Buyer.
Section 6.03 Deliveries. At the Closing, the Buyer shall deliver to the
Company: (i) documents evidencing the Loan Amount in transferable form
satisfactory to the Company for cancellation in part and contribution to the
Company's equity in part; (ii) the Cash Purchase Price; (iii) a certificate of
the Buyer certifying as to the fulfillment of the conditions set forth in
Section 6.01 and 6.02; (iv) evidence of the consent of the Bank to the
consummation of the transactions contemplated hereby; (v) a good standing
certificate for the Buyer issued by the Secretary of State of Delaware; and (vi)
such other instruments and certificates as may be reasonably requested by the
Company.
30
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
----------------------------------------
COVENANTS AND AGREEMENTS.
-------------------------
Except as otherwise specifically provided for herein, the
representations, warranties, covenants and agreements of the Buyer and the
Company included or provided for herein, or in other instruments or agreements
delivered or to be delivered at or prior to Closing in connection herewith,
including the representations and warranties of all entities or persons made in
the certificates to be delivered to the Buyers pursuant hereto (each, an
"Ancillary Document"), and the obligation of the Buyer and the Company to
indemnify on account of a breach or violation thereof shall survive for a period
of eighteen (18) months following the Closing Date (or such longer period as set
forth in the succeeding sentences). There shall be no limit on the survival of
the indemnification obligations of the Company for breaches of the
representations or warranties made by the Company as to the transfer of legal
and valid title to the Securities, the Warrant and the Stock and as to
Environmental Matters. The indemnification obligations of the Company for
breaches of the representations or warranties made by the Company with respect
to Taxes or Tax matters shall survive until the expiration of the applicable
statute of limitations. Notwithstanding anything herein to the contrary, if,
prior to the expiration of any indemnification period, either the Buyer or the
Company shall have been notified of a claim for indemnity hereunder and such
claim shall not have been finally resolved before the expiration of such period,
any representation, warranty, covenant or agreement that is the basis for such
claim shall continue to survive and shall remain a basis for indemnity as to
such claim until such claim is finally resolved. All statements contained herein
and in the Schedules, the Financial Statements and the certificates delivered
pursuant to this Agreement shall be deemed representations and warranties for
all purposes of this Agreement. The respective representations and warranties of
the Company and the Buyer contained herein or in any other documents covered in
the preceding sentence shall not be deemed waived or otherwise affected by any
investigation made by any party hereto or any amendment or supplement to the
schedules or exhibits hereto occurring after the signing of this Agreement.
ARTICLE VIII.
INDEMNIFICATION.
----------------
Section 8.01 General Indemnity.
Subject to the limitations and other provisions of Article VII and this
Article VIII, the Company agrees to indemnify and hold harmless the Buyer, its
Affiliates (as defined below), and the successors and assigns of each of them
from, against and in respect of any and all Losses (as defined below) resulting
from, incurred in connection with or arising out of (i) any breach of any
31
representation, warranty, covenant or agreement of the Company or any breach of
the representations and warranties made in the certificates delivered to the
Buyer pursuant hereto and any actual or threatened action or proceeding in
connection with any such breach, (ii) any litigation to which the Buyer or any
of its Affiliates is or becomes subject relating to the conduct of the business
of the Company on or prior to the Closing Date, (iii) any liens, charges or
encumbrances on the Securities, the Warrant or the Stock or (iv) any untrue
statement or alleged untrue statement of any material fact contained in or
omission or alleged omission to state in the Information Statement or in any of
the Rights Offering Materials (as defined in Section 9.14) a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made except insofar
as the untrue statement, alleged untrue statement, omission or alleged omission
is based upon information furnished in writing to the Company by the Buyer
expressly for use in the Information Statement or in the Rights Offering
Materials, as the case may be. The Buyer shall indemnify and hold harmless the
Company, its Affiliates and their successors and assigns from, against and in
respect of any and all Losses resulting from, incurred in connection with or
arising out of (i) any breach of any representation, warranty, covenant or
agreement of the Buyer and any actual or threatened action or proceeding in
connection therewith and (ii) any untrue statement or alleged untrue statement
of any material fact contained in or omission or alleged omission to state in
any of the Rights Offering Materials a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they were made if and only to the extent that such
untrue statement, alleged untrue statement, omission or alleged omission is
based upon information furnished to the Company in writing by the Buyer
expressly for use in the Rights Offering Materials. The party or parties being
indemnified are referred to herein as the "Indemnitee" and the indemnifying
party is referred to herein as the "Indemnitor". The term "Affiliate" or
"Affiliated" or any similar term shall mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, a specified person. The term "Loss" or "Losses" or
any similar term shall mean any and all liabilities (whether accrued, contingent
or otherwise), damages, deficiencies, costs, claims, judgments, amounts paid in
settlement, interest, penalties, assessments and out-of-pocket expenses
(including reasonable attorneys' and auditors' fees and disbursements).
Section 8.02 Indemnification Procedure.
(a) Any party who receives notice of a potential claim that
may, in the judgment of such party, result in a Loss shall use all reasonable
efforts to provide the parties hereto notice thereof, provided that failure or
delay or alleged delay in providing such notice shall not adversely affect such
party's right to indemnification hereunder. In the event that any party shall
incur or suffer any Losses in respect of which indemnification may be sought by
such party hereunder, the Indemnitee shall assert a claim for indemnification by
written notice (a "Notice") to the Indemnitor stating the nature and basis of
such claim. In the case of Losses arising by reason of any third party claim,
the Notice shall be given within 30 days of the filing or other written
assertion of any such claim against the Indemnitee, but the failure of the
Indemnitee
32
to give the Notice within such time period shall not relieve the Indemnitor of
any liability that the Indemnitor may have to the Indemnitee.
(b) In the case of third party claims for which
indemnification is sought, the Indemnitor shall have the option (i) to conduct
any proceedings or negotiations in connection therewith, (ii) to take all other
steps to settle or defend any such claim (provided that the Indemnitor shall not
settle any such claim without the consent of the Indemnitee which consent shall
not be unreasonably withheld) and (iii) to employ counsel to contest any such
claim or liability in the name of the Indemnitee or otherwise. In any event the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in any proceedings relating to any third party claim. The Indemnitor
shall, within 20 days of receipt of the Notice, notify the Indemnitee of its
intention to assume the defense of such claim. If (i) the Indemnitor shall
decline to assume the defense of any such claim, (ii) the Indemnitor shall fail
to notify the Indemnitee within 20 days after receipt of the Notice of the
Indemnitor's election to defend such claim or (iii) the Indemnitee shall have
reasonably concluded that there may be defenses available to it which are
different from or in addition to those available to the Indemnitor (in which
case the Indemnitor shall not have the right to direct the defense of such
action on behalf of the Indemnitee), the Indemnitee shall defend against such
claim and the Indemnitee may settle such claim without the consent of the
Indemnitor, and Indemnitor may not challenge the reasonableness of any such
settlement. The expenses of all proceedings, contests or lawsuits in respect of
such claims shall be borne and paid by the Indemnitor and the Indemnitor shall
pay the Indemnitee, in immediately available funds, the amount of any Losses, as
such Losses are incurred. Regardless of which party shall assume the defense of
the claim, the parties agree to cooperate fully with one another in connection
therewith. In the event that any Losses incurred by the Indemnitee do not
involve payment by the Indemnitee of a third party claim, then, the Indemnitor
shall within 10 days after agreement on the amount of Losses or the occurrence
of a final non-appealable determination of such amount, pay to the Indemnitee,
in immediately available funds, the amount of such Losses. Anything in this
Article VIII to the contrary notwithstanding, the Indemnitor shall not, without
the Indemnitee's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnitee or which does not include, as an unconditional term
thereof, the giving by the claimant or plaintiff to the Indemnitee, a release
from all liability in respect of such claim.
(c) The remedies provided for in this Agreement shall not be
exclusive of any other rights or remedies available to one party against the
other, either at law or in equity.
(d) No claim may be made against the Company for
indemnification pursuant to this Article VIII with respect to any individual
item of liability or damage, unless the aggregate of all such liabilities and
damages of Buyer, its Affiliates, and their respective successors and assigns
under this Article VIII shall exceed $500,000, and the Company shall not be
required to pay or be liable for the first $500,000 in aggregate amount of any
such liabilities and damages. Neither Buyer, its Affiliates nor any of their
respective successors or assigns shall be indemnified pursuant to this Article
VIII with respect to any individual item of liability or damage if the
33
aggregate of all liabilities and damages of Buyer, its Affiliates and their
respective successors and assigns for which they have received indemnification
hereunder shall have exceeded $3,000,000. For the purposes of this Article VIII,
in computing such individual or aggregate amounts of claims, the amount of each
claim shall be deemed to be an amount (i) net or any Tax benefit to the Buyer,
(ii) net of any insurance proceeds and any indemnity, contribution or other
similar payment payable by any third party with respect thereto, and (iii) net
of any reserves provided for in the Financial Statements.
ARTICLE IX.
COVENANTS/OBLIGATIONS AFTER THE CLOSING.
----------------------------------------
Section 9.01 Further Assurances. Subject to the terms and conditions
hereof, the Company agrees that after the Closing Date it will execute and
deliver such documents to the Buyer as the Buyer may reasonably request in order
to more effectively vest in the Buyer good title to the Securities and to
consummate the transactions contemplated hereby and the Buyer agrees that after
the Closing Date it will execute and deliver such documents to the Company as
the Company may reasonably request to evidence consummation of the transactions
Contemplated hereunder.
Section 9.02 Maintenance of Office. The Company shall maintain at its
principal place of business, an office where the Notes, the Warrant and the
Stock may be surrendered for transfer and where notices and demands to or upon
the Company in respect of the Notes, the Warrant and the Stock may be served.
Section 9.03 Corporate Existence; Status. The Company shall do or cause
to be done, and shall cause each of its subsidiaries to do or cause to be done,
all things necessary to preserve and keep in full force and effect its and their
corporate existence in accordance with the rights, licenses and franchises of
the Company and its subsidiaries.
Section 9.04 Dividends. The Company shall not make, pay or declare,
directly or indirectly, any dividends or other distributions with respect to its
capital stock (other than dividends in the form of additional capital stock of
the Company) or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, retirement or
other acquisition of, any of its capital stock prior to the payment in full of
the obligations with respect to the Notes, the Investor Preferred Stock and the
Convertible Preferred Stock, except to the extent expressly permitted by the
terms of the Notes, the Investor Preferred Stock or the Convertible Preferred
Stock.
Section 9.05 Application of Proceeds. The Company shall apply the
proceeds under Article I hereof from the sale of the Securities for working
capital and general corporate purposes; provided, however, the Company may apply
$200,000 of the proceeds to pay the fee of
34
Wasserstein, Perella & Co. for the fairness opinion contemplated by Section 4.04
hereof, $150,000 of the proceeds to pay an amendment fee to the Bank and may
apply proceeds to pay other fees due to the Bank on the date hereof and the fees
and expenses of the Buyer pursuant to Section 10.01.
Section 9.06 Observance of Statutes, Regulations and Orders. The
Company shall, and shall cause each of its subsidiaries to remain at all times
in compliance with all laws, statutes or other rules or regulations of any
Governmental Entity or other regulatory authority.
Section 9.07 Taxes. The Company shall pay, and shall cause each of its
subsidiaries to pay, prior to delinquency, all such Taxes, assessments and
governmental levies as are imposed upon the Company or its subsidiaries, except
as contested in good faith and by appropriate proceedings and for which reserves
or other appropriate provisions, if any, as shall be required by GAAP, shall
have been made.
Section 9.08 Maintenance of Properties. The Company shall, and shall
cause each of its subsidiaries to, maintain, preserve, protect and keep the
properties material to the operation of its business, and its subsidiaries, in
good repair, working order and condition (ordinary wear and tear excepted), and
make all necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly conducted at all
times consistent with past practices of the Company.
Section 9.09 Books and Records. The Company shall, and shall cause each
of its subsidiaries to keep books and records which accurately reflect all of
its material business affairs and transactions.
Section 9.10 Maintenance of Insurance; Indemnification. The Company
shall maintain insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in a similar business and owning similar properties in the
same general areas in which the Company operates. In addition, the Company shall
enter into and maintain indemnification agreements with the members of the
Company's Board of Directors, such agreements to indemnify such persons to the
maximum extent provided by law.
Section 9.11 Inspection. As often as may reasonably be requested, the
Company will permit any authorized representative designated by Buyer to visit
and inspect any of their respective properties, including its financial and
accounting records, and to make copies and extracts therefrom, and to discuss
the Company's affairs and finances with its officers and independent
accountants, all upon reasonable prior notice and at reasonable times during
normal business hours.
Section 9.12 Furnish Reports. For so long as the Buyer owns any Notes
or Stock, the Company shall maintain a system of accounting established and
administered in accordance with
35
U.S. generally accepted accounting principles consistently applied, and shall
furnish to Buyer (i) within ninety (90) days of its fiscal year end a copy of
its audited financial statements, (ii) within forty-five (45) days of the end of
each quarter a copy of its unaudited quarterly financial statements and (iii)
within ten (10) days of the end of each month a copy of its unaudited monthly
financial statements.
Section 9.13 Furnish Additional Information. The Company will furnish
the following additional information to the Buyer:
(a) Promptly (but in any event within five days) after receipt
thereof, any letters furnished to the Company by its independent public
accountants which comment on the accounting practices of the Company;
(b) Promptly (but in any event within five days) after the
discovery of any material adverse event or circumstance affecting the Company,
including but not limited to the filing of any material litigation against the
Company or any subsidiary or the discovery that the Company is not, or with the
passage of time will not be, in compliance with any provision of its certificate
of incorporation or By-laws or with any provision of this Agreement or any other
material agreement, a letter from the president or chief financial officer of
the Company speci fying the nature and period of existence thereof and the
actions the Company has taken or proposes to take with respect thereto;
(c) Promptly (but in any event within five days) after
transmission thereof, copies of any communication from the Company to its
stockholders or the financial community at large, and any reports filed by the
Company with any securities exchange, the National Association of Securities
Dealers, Inc., the Commission, any state official or agency charged with
securities regulation, any other governmental agency, domestic or foreign, and
any material correspondence between the Company and any of the foregoing
(including, without limitation, any correspondence from any of the foregoing);
and
(d) With reasonable promptness, such other information and
data with respect to the Company and its subsidiaries as the Buyer may from time
to time reasonably request.
Section 9.14 Rights Offering.
(a) Promptly after the conversion or exchange of the
Securities into Convertible Preferred Stock, Common Stock and the Warrant in
accordance with the terms of the Securities, the Company shall offer each of the
holders of Common Stock and preferred stock of the Company (including the Buyer)
the transferable right (the "Rights") to subscribe for Common Stock with respect
to each share of Common Stock owned by such stockholders at a subscription price
per share of Common Stock equal to $.30 (the "Rights Offering"). Subscriptions
for fractional shares will not be accepted, but will be rounded down to the
nearest whole number.
36
(b) Pursuant to the Rights Offering, each stockholder of the
Company will receive one Right for each share of Common Stock held by such
stockholder (on a fully diluted basis). The Buyer will commit to subscribe for
its pro rata portion of shares of Common Stock offered pursuant to the Rights
issued to it based on the number of shares of Common Stock owned by the Buyer at
the time of the Rights Offering (on a fully diluted basis). If the stockholders
of the Company (including the Buyer) subscribe for less than 10,000,000 shares
of Common Stock (representing an aggregate subscription price of $3.0 million)
(such number of shares less than 10,000,000 being referred to herein as the
"Share Deficiency"), then the Buyer (or its designee) will subscribe for that
number of additional shares of Common Stock as is equal to the Share Deficiency.
It is acknowledged that the purchase price for any Common Stock subscribed for
by the Buyer shall have been satisfied by conversion or exchange of the
Securities into Convertible Preferred Stock, Common Stock and the Warrant and no
further amount shall be due or owing from the Buyer on account of any such
Common Stock subscribed for by the Buyer. The proceeds of any Common Stock
subscribed for in the Rights Offering by stockholders of the Company other than
the Buyer shall be promptly paid to the Buyer in reduction of any outstanding
Notes. The Company will use all reasonable efforts to file a registration
statement with respect to the Rights Offering with the Commission within five
days of the Closing Date, and to have such registration statement declared
effective by the Commission within 40 days of the Closing Date, and to
consummate such Rights Offering promptly thereafter. The Registration Statement,
the prospectus included therein, and the other materials used in connection with
the Rights Offering are referred to herein as the "Rights Offering Materials."
(c) In connection with the Rights Offering, the Company will
(i) prepare and file and use its reasonable efforts to have declared effective a
registration statement under the Securities Act related thereto (the
"Registration Statement"); (ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the period of the offering and to comply with the
provisions of the Securities Act (such amendments and supplements, together with
the Registration Statement and prospectus, being referred to herein as the
"Rights Offering Materials"); (iii) use all reasonable efforts to register or
qualify all Rights, to the extent necessary, and the shares of Common Stock
issuable upon the exercise of the Rights and to the Buyer as a result of a Share
Deficiency under any applicable securities or blue sky laws; and (iv) to do any
and all other things reasonably necessary or advisable to consummate the
distribution of the Rights and the consummation of the Rights Offering in
compliance with the Securities Act and all applicable state securities and blue
sky laws; provided, however, that the Company shall not be required to (x)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for the Rights Offering, (y) subject itself
to taxation in any such jurisdiction or (z) consent to general service of
process in any such jurisdiction.
(d) When the Rights Offering Materials shall first be mailed
or distributed to stockholders (the "Mailing Date"), the information with
respect to the Company and the
37
Subsidiaries set forth in the Rights Offering Materials or incorporated therein
by reference (i) will comply in all material respects with the provisions of the
federal securities laws; (ii) will comply in all material respects with all
applicable provisions of Delaware law; and (iii) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, and the consolidated financial statements contained therein will
fairly present the consolidated financial condition of the Company and its
consolidated subsidiaries (including the Subsidiaries). At all times subsequent
to the Mailing Date up to and including the closing of the Rights Offering, the
information with respect to the Company and the Subsidiaries set forth in the
Rights Offering Materials (x) will comply in all material respects with the
provisions of the federal securities laws and (y) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, and the consolidated financial statements contained therein will
fairly present the consolidated financial condition of the Company and its
consolidated subsidiaries (including the Subsidiaries).
Section 9.15 Transfer of Securities. The Buyer, subject to applicable
federal and state securities laws, may transfer all or any portion of the Notes,
the Warrant or the Stock.
Section 9.16 Corporate Governance.
(a) At the Closing, and for so long as any Investor Preferred
Stock is outstanding, the Buyer shall have the right to designate that number of
the Company's nominees for election to the Board which shall be equal to one
director less than a majority of the total number of directors constituting the
whole Board of Directors; provided, that such nominees are "Suitable Directors."
At the Closing of the conversion or exchange of the Securities pursuant to
Section 9.18 and for so long as the outstanding shares of Convertible Preferred
Stock which have not been converted, redeemed or exchanged in accordance with
their terms shall constitute fifty percent (50%) or more of the shares of
Convertible Preferred Stock originally issued (beginning with the period
commencing at the Closing Date, the "Covered Period"), the Buyer shall have the
right to designate a majority of the Company's nominees for election to the
Board; provided, that such nominees are "Suitable Directors". The nominees
designated by the Buyer are herein referred to as the "Buyer Nominees." The
Company's Board of Directors shall recommend or approve all such Buyer Nominees
prior to their appointment as directors. In furtherance of the foregoing, the
Company, acting through its Board and in accordance with its Certificate of
Incorporation, By-laws and applicable law, shall recommend in the proxy
statement for each annual or special meeting of stockholders at which directors
shall be elected, and shall recommend at each such stockholders meeting, as part
of the management or Board slate for election to the Board, the Buyer Nominees.
All shares for which the Company's management or Board holds proxies (including
undesignated proxies) shall be voted in favor of the election of such Buyer
Nominees, except as may otherwise be provided by stockholders submitting such
proxies. In the event that any Buyer Nominee shall cease to serve as a director
for any reason, the Company shall cause (subject to the provisions of applicable
law) the vacancy resulting
38
thereby to be filled as promptly as practicable by a Suitable Director selected
by the Buyer. The Buyer shall cause the Buyer Nominees to provide the Company
with such information as the Company may reasonably request for inclusion in the
Company's proxy statement for each meeting at which their election is to be
acted upon. "Suitable Directors" shall mean (x) persons of appropriate
experience who possess the same level of general business experience as the
present non-employee members of the Board, and (y) persons with respect to whom
no disclosure would be required in compliance with the requirements of Item
401(f) of Regulation S-K promulgated under the Securities Act. The parties
hereto agree that the determination of "appropriate experience," as such term is
used in the preceding sentence, shall be made in good faith and subject to their
fiduciary obligations by a majority of the Company's independent directors. If a
nominee designated by the Buyer is determined not to be a Suitable Director, the
directors who made such determination shall set forth, in reasonable detail,
their reasons for such determination in a written statement to be delivered to
the Buyer promptly after such determination.
The Buyer and the Company will each use its best efforts to
effectuate the provisions of this Section 9.16.
(b) All deliberations and approvals regarding the refinancing or
replacement of the revolving credit portion of the Company's Loan Agreement
shall be made by the Credit Facility Committee (as defined below). For purposes
of this Section 9.16, the term "Credit Facility Committee" shall mean a
committee of the Board of Directors of the Company comprised of Xxxx Xxx
Xxxxxxxxx and two Buyer Nominees selected for such committee by the Buyer. The
Buyer may, in its sole discretion, waive the formation of the Credit Facility
Committee and the requirements of this Section 9.16(c).
Section 9.17 Options. From and after the Closing, so long as any Notes
or shares of Stock are held by the Buyer, no options to purchase Common Stock
shall be repriced or new options to purchase Common Stock issued without the
approval of the Buyer Nominees.
Section 9.18 Exchange of Securities. Upon the closing (the "Refinancing
Closing") of the repayment of all amounts due and owing to the Bank by the
Company under the revolving credit portion of the Company's Loan
Agreement,$14,396,488.20 aggregate principal amount of the Notes and the
Investor Preferred Stock shall be automatically converted into (i) shares of
fully paid and non-assessable Convertible Preferred Stock equal to $12,000,000
in stated value, (ii) the fully paid and non-assessable Warrant and (iii) to the
extent the authorized capital stock of the Company permits and the Registration
Statement shall have been declared effective by the Commission, 7,988,294 shares
of fully paid and non-assessable Common Stock in the Rights Offering, without
further notice and without action on the part of the Buyer (or such lesser
number of shares of Common Stock as are available for purchase by the Buyer
(provided, that no shares shall be deemed available for purchase if the
Registration Statement shall not have been declared effective by the
Commission)); provided, however, that if the Refinancing Closing shall not have
occurred on or prior to March 31, 1998, the Notes and the Investor Preferred
Stock shall
39
no longer be convertible or exchangeable hereunder. The remaining $603,511.80
aggregate principal amount of the Notes (assuming authorized capital stock of
the Company is available to permit the purchase of the full 7,988,294 shares of
Common Stock and the Registration Statement shall have been declared effective
by the Commission) shall be used to purchase Common Stock in the Rights Offering
by paying the exercise price of Rights not exercised by stockholders of the
Company other than the Buyer pursuant to the Rights Offering. The Company shall
promptly remit to the Buyer all monies representing the exercise of the Rights
by stockholders of the Company other than the Buyer pursuant to the Rights
Offering and the remaining principal amount of the Notes shall be repaid dollar
for dollar as the Buyer receives such monies from the Company. If the
Refinancing Closing occurs prior to the time that the Company has 7,988,294
shares of Common Stock available for purchase by the Buyer and prior to the time
the Registration Statement shall have been declared effective by the Commission,
the Notes shall remain outstanding in a principal amount equal to $3,000,000.
Any remaining balance of the Notes will be converted into Common Stock, upon the
Company authorizing a sufficient amount of capital stock and the Registration
Statement having been declared effective by the Commission, in an amount equal
to the quotient obtained by dividing (aa) the balance of such Notes less the
aggregate dollar amount to be paid by other stockholders in the exercise of
their rights to purchase Common Stock in the Rights Offering by (bb) .30. The
Company shall pay all issue taxes, if any, incurred in respect of the issue of
the securities delivered on conversion or exchange of the Securities pursuant to
this Section 9.18.
Section 9.19 Information Statement; Certificate of Incorporation. (a)
The Company, in compliance with applicable law, shall prepare and file with the
Securities and Exchange Commission (the "Commission") no later than September
26, 1997, the Information Statement subject to prior consultation with the
Buyer. The Company shall respond promptly to any comments made by the Commission
with respect to the Information Statement and shall provide the Buyer with
copies of all its correspondence with the Commission relating thereto, and the
Company shall not file an amendment or any other document with the Commission
unless the Buyer shall first have had adequate opportunity to review and comment
on such document. The Company will amend, supplement or revise the Information
Statement as may from time to time be necessary in order to insure that the
Information Statement does not contain any statement which, at the time and in
the light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omits to state any material fact necessary
in order to make the statements therein not false or misleading. The Company
shall cause the Information Statement to be mailed to the Company's stockholders
at the earliest practicable date.
(b) The Company shall, as soon as practicable, amend its
Certificate of Incorporation to (x) eliminate the provisions for a classified
Board of Directors and (y) increase its authorized capital stock. The amendment
shall be duly authorized by the Company and its stockholders and shall be duly
filed with the Secretary of State of Delaware.
Section 9.20 Confidentiality. Except to the extent necessary to
develop, preserve and maintain the Company's business relationships and to
perform the terms of this Agreement, no
40
party (or its representatives, agents, counsel or accountants) hereto shall
disclose to any third party any confidential or proprietary information about
the business or operations of the other party hereto or their subsidiaries or
the transactions contemplated hereby, except as may be required by applicable
law. The parties hereto agree that the remedy at law for any breach of the
requirements of this Section 9.20 will be inadequate and that any breach would
cause such immediate and permanent damage as would be impossible to ascertain,
and, therefore, the parties hereto agree and consent that in the event of any
breach of this Section 9.20, in addition to any and all other legal and
equitable remedies available for such breach, including a recovery of damages,
the non-breaching party shall be entitled to obtain preliminary or permanent
injunctive relief without the necessity of proving actual damage by reason of
such breach and, to the extent permissible under applicable law, a temporary
restraining order may be granted immediately on commencement of such action. The
Buyer shall have the right to review and provide input on press releases of the
Company relating to this Agreement and the transaction contemplated hereby.
Notwithstanding the foregoing, the Buyer shall be entitled to (a) discuss this
Agreement and the transactions contemplated hereby with stockholders of the
Company and to solicit their approval of such transactions and (b) discuss this
Agreement, the transactions contemplated hereby and the Company with the Buyer's
members.
9.21 Modification of Preferred Stock. The Company shall promptly modify
and/or exchange or convert the Preferred Stock, on terms satisfactory to the
Buyer.
ARTICLE X.
MISCELLANEOUS.
--------------
Section 10.01 Costs. The Buyer on the one hand and the Company on the
other each represent to the other that it has not used a broker in connection
with the transactions contemplated by this Agreement. The Company shall pay the
costs and expenses incurred by the Company and all reasonable legal fees and
expenses incurred by the Buyer in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses incurred by the Buyer with
respect to the Loan Amount and the fees and expenses of an advisor retained by
the Buyer to provide advice to the Buyer in respect of the potential tax
consequences to the Company of the contribution to the Company of the Loan
Amount. In addition, the Company shall pay the out of pocket costs of the Buyer
and Onyx Partners, Inc. ("Onyx") up to a maximum of $75,000 in the aggregate.
The Company shall reimburse the Buyer (or Onyx, as appropriate) by bank check or
wire transfer of immediately available funds for the expenses reflected in this
Section 10.01. Such amounts shall be paid promptly by the Company upon
presentation of documentation reasonably satisfactory to it evidencing such
expenditures. The Company acknowledges that the agreements contained in this
Section 10.01 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Buyer would not enter into
this Agreement; accordingly, if the Company fails to promptly pay the expenses
hereunder when due,
41
the Company shall in addition thereto pay to the Buyer all costs and expenses
(including reasonable fees and disbursements of counsel) incurred in collecting
such expenses due under this Section 10.01 together with interest on the amount
of the expenses due under this Section 10.01 (or any unpaid portion thereof)
from the date such payment is received by the Buyer at the rate of 15% per
annum.
Section 10.02 Headings. Subject headings are included for convenience
only and shall not affect the interpretation of any provisions of this
Agreement.
Section 10.03 Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or sent by
telecopy, on the business day after notice is delivered to a courier or mailed
by express mail if sent by courier delivery service or express mail for next day
delivery and on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
If to the Company to:
Chief Executive Officer
Danskin, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Fax: (000) 000-0000
Phone: (000) 000-0000
with a copy to:
Xxxxxx X. Xxxxxxxxxxx III, Esq.
Xxxxxx, Xxxxx & Xxxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Phone: (000) 000-0000
If to the Buyer, to:
Xxxxxx Xxxxxxxxx
Danskin Investors, LLC
c/o Onyx Partners, Inc.
0000 Xxxxxxxx Xxxx.
Xxxxx 000
00
Xxxxxxx Xxxxx, XX 00000
Fax: (000) 000-0000
Phone: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxxx, Esq.
Shereff, Friedman, Xxxxxxx & Xxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Phone: (000) 000-0000
Section 10.04 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties.
Section 10.05 Governing Law; Forum; Process. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of New York
as applied to contracts made and to be performed entirely in the State of New
York without regard to principles of conflicts of law. Each of the parties
hereto hereby irrevocably and unconditionally submits to the exclusive
jurisdiction of any court of the State of New York or any federal court sitting
in the State of New York for purposes of any suit, action or other proceeding
arising out of this Agreement (and agrees not to commence any action, suit or
proceedings relating hereto except in such courts). Each of the parties hereto
agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement, which is brought by or against it, in the courts of the State
of New York or any federal court sitting in the State of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 10.06 Entire Agreement. This Agreement, including the Related
Agreements, Schedules and Exhibits hereto, sets forth the entire understanding
and agreement and supersedes any and all other understandings, negotiations or
agreements between the Company and the Buyer relating to the sale and purchase
of the Securities, including, but not limited to, that certain letter of
agreement, dated May 19, 1997, by and between the Company and Onyx on behalf of
the Buyer.
Section 10.07 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.
43
Section 10.08 Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
Section 10.09 No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
Section 10.10 Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
Section 10.11 Parties in Interest. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give to any
person, firm or corporation other than the parties hereto any rights or remedies
under or by reason of this Agreement or any transaction contemplated hereby.
Section 10.12 Amendment and Modification. This Agreement may be amended
or modified only by written agreement executed by all parties hereto.
Section 10.13 Waiver. At any time prior to the Closing, the Buyer or
the Company may (i) extend the time for the performance of any of the
obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party granting such waiver but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
Section 10.14 Knowledge of the Company. References herein to the
Company's knowledge shall include the knowledge of Xxxxxx Xxxxxxx, Xxxx Xxx
Xxxxxxxxx, Xxxxxxx Xxxxxx and Xxxxx Xxxx.
Section 10.15 Remedy for Breach. The Company hereby acknowledges that
in the event of any breach or threatened breach by the Company of any of the
provisions of this Agreement, the Buyer would have no adequate remedy at law and
could suffer substantial and irreparable damage. Accordingly, the Company hereby
agrees that, in such event, the Buyer shall be entitled, without the necessity
of proving damages or posting bond, and notwithstanding any election by the
Buyer to claim damages, to obtain a temporary and/or permanent injunction
(without proving a breach therefor) to restrain any such breach or threatened
breach or to obtain specific performance of any such provisions, all without
prejudice to any and all other remedies which the Buyer may have at law or in
equity.
44
10.16 Assignment. The Buyer may assign a portion of its rights and
benefits hereunder to the Xxxxxxxxxxx Bond Fund for Growth.
45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
DANSKIN, INC.
a Delaware corporation
By:
---------------------------------
Name:
Title:
DANSKIN INVESTORS, LLC
a Delaware limited liability company
By: Onyx Partners, Inc.
its manager
By:
---------------------------------
Name:
Title:
46
